Country Report Ukraine October 2009

Outlook for 2010-11

• 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 the severe economic recession.
• Relations with Russia are expected to remain tense, at least until the presidential election. The two leading contenders are likely to adopt a friendlier position towards 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 high risk of further funding delays.
• The contraction in real GDP is estimated at 17% in 2009, and is forecast to recover slightly in 2010, before picking up in 2011. There are significant downside risks, however, as macroeconomic stability has yet to be restored.
• The budget deficit will remain relatively large in 2010-11. Although the rate of inflation will come down, it will stay high. The current-account deficit will be contained by weak domestic demand and an increase in exports.

Monthly review

• The opposition Party of Regions (PoR) has continued its blockade of the parliamentary rostrum over its demands that social expenditure be increased.
• Arseny Yatsenyuk has fallen behind Yuliya Tymoshenko in the opinion polls. The PoR leader, Viktor Yanukovych, remains in the lead.
• The government has approved and submitted to parliament a draft 2010 budget that targets a deficit of 4% of GDP, in line with IMF conditions. The budget's assumption of 3.7% real GDP growth in 2010 appears optimistic.
• The Ministry of Finance reports that the 2009 budget is being implemented according to plan. However, some observers suggest that budget targets have regularly been lowered and some expenditure postponed until year-end.
• Controversy over the exchange-rate policy of the National Bank of Ukraine (NBU, the central bank) has intensified in the run-up to the president election.
• Macroeconomic data releases continue to offer little evidence of a turnaround. Industrial output decreased by 0.9% month on month in August.
• Assisted by seasonal food price trends, year-on-year consumer price inflation eased moderately in August, but remained high, at 15.3%.
• The balance-of-payments position improved in the second quarter as pressure on the hryvnya moderated.

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