Country Report Ukraine June 2009

Outlook for 2009-10

• Domestic politics will remain extremely uncertain and prone to instability in the run-up to the presidential election in either late 2009 or early 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 12%, and to recover only slowly in 2010. The 2009 forecast has been downgraded from a 10% 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

• The next presidential election is now unlikely to take place before January 2010, after the Constitutional Court rejected the election date of 25th October.
• Negotiations between the opposition Party of Regions (PoR) and the governing Yuliya Tymoshenko Bloc (YTB) to form a coalition have collapsed.
• The prime minister, Yulija Tymoshenko, has been purging her government of pro-Yushchenko ministers, and the defence minister was dismissed in June.
• The second tranche of IMF funding is being used to replenish the foreign reserves of the National Bank of Ukraine (NBU, the central bank) and for budget financing.
• Speculation is mounting about Ukraine's ability to pay for Russian gas on a monthly basis, given the country's financial troubles.
• The NBU has lifted a moratorium on early withdrawal of deposits and tightened bank refinancing conditions.
• Poor data for output and retail sales in April quashed hopes that a recovery might have started, following the sharp downturn that began in late 2008.
• Foreign trade data for the first quarter provide further indication of the drastic contraction of the economy. The current-account deficit narrowed sharply.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52