Country Report Ukraine July 2009

Outlook for 2009-10

• Domestic politics will remain extremely uncertain and prone to instability in the run-up to the presidential election in January 2010. Risks to stability have increased in the light of severe economic dislocation.
• Relations with Russia are expected to remain tense until the presidential election. The two leading contenders are likely to adopt a friendlier position to Russia than the incumbent, Viktor Yushchenko.
• The Economist Intelligence Unit assumes that the authorities will take sufficient policy steps to keep the IMF programme broadly on track, although there is a risk of further funding delays.
• There will be a deep recession in 2009: real GDP is forecast to contract by 17%, and to recover only slightly in 2010. The 2009 forecast has been downgraded from a 12% contraction, and significant downside risks remain.
• The budget deficit will widen sharply over the forecast period. Although the rate of inflation will come down, it will remain high. The current-account deficit will narrow sharply as a result of reduced import demand.

Monthly review

• Parliament approved January 17th 2010 as the date for the next presidential election, ending months of disagreements over the timing. The number of probable contenders for the position is swelling.
• In an attempt to undermine the prime minister, Yuliya Tymoshenko, the opposition Party of Regions (PoR) has been preventing her from completing a cabinet reshuffle by blocking the parliamentary rostrum.
• An IMF mission reached preliminary agreement with the Ukrainian authorities on disbursement of the third tranche of stabilisation financing, worth US$3.3bn. However, certain conditions still have to be met.
• The budgetary situation remains a cause for concern, and the government is planning to recapitalise the state-owned oil and gas company, Naftogaz, in order to enable it to meet its payments for natural gas imports.
• In June the National Bank of Ukraine (NBU, the central bank) lowered its benchmark refinancing rate from 12% to 11%, the first change since April 2008.
• Real GDP contracted by 20.3% in the first quarter of 2009, down sharply from the contraction of 8% in the final quarter of 2008. Output data give little sign of a recovery since then, and retail sales continue to fall.
• Inflation ticked up to 15% year on year in June, mainly because higher excise duties pushed up the cost of alcohol and tobacco, and administered utility and transport prices also rose.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;37;70;53;49;82;2834;80;20;22;39;48
NAICS Code: 52;336;72;44;22;61;3254;62;311;313;517