Country Report Ukraine March 2009

Outlook for 2009-10

• Domestic politics will remain extremely uncertain and prone to instability in the run-up to the presidential election in early 2010. Risks to political stability have increased in the light of the 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 than the incumbent, Viktor Yushchenko.
• We assume that the authorities will take sufficient policy steps to trigger the release of further tranches of IMF support in 2009-10. However, the risks to this outlook are considerable, given the lack of political consensus.
• There will be a deep recession in 2009: real GDP is now forecast to contract by 10%, and to recover only slowly in 2010. The main risks to the outlook stem from the uncertain outlook for the hryvnya and the banking sector.
• The currency will weaken sharply in 2009. The current-account deficit is forecast to narrow as a result of reduced import demand.

Monthly review

• The government survived the second no-confidence vote in seven months.
• Mr Yushchenko and the prime minister, Yuliya Tymoshenko, have temporarily put aside their differences to send a co-ordinated letter of intent to the IMF aimed at unlocking funding.
• Tensions between the president and the prime minister subsequently resurfaced, stemming from the gas deal with Russia signed in January.
• An increasing number of generally small protest demonstrations have been reported across the country.
• The IMF delayed the release of the second tranche of financial support, owing to concerns over fiscal policy. It said that it will accept a budget deficit of 1% of GDP or more if the authorities can finance it in a non-inflationary way.
• The government has approached a number of countries, including Russia, Japan, China and EU countries, for loans to help to cover the budget deficit.
• The severe economic downturn accelerated in January, with industrial output reported as contracting by 34% year on year in real terms.
• The current-account deficit is narrowing sharply owing to falling domestic demand, and the central bank has continued with intervention and controls, but the hryvnya remains under strong downward pressure.
• Ukrainians withdrew a record amount of deposits from the banking system in January, totalling around HRN8.4bn (US$1.1bn).

Source: Country Report

This report covers the following industry codes:
SIC Code: 10;37
NAICS Code: 212;336