Country Risk Service Ukraine January 2013 Updater

Country Risk Service Ukraine January 2013 Updater

Overview

Following the parliamentary election on October 28th 2012, the new government is again led by the Party of Regions (PoR) of the president, Viktor Yanukovych. The negotiation of an IMF programme is vital and may proceed in early 2013. Pre-election policies prevented the narrowing of the budget deficit in 2012, although a return to a more restrained fiscal policy is now likely. The new government will probably be forced to attempt a controlled depreciation, probably in early 2013. Economic performance deteriorated sharply in the third quarter of 2012 and into the fourth quarter. Inflation for the year was very weak, despite a poor harvest, in part owing to the economic slowdown of the second half. The Economist Intelligence Unit estimates that the current-account deficit widened in 2012, to around 8% of GDP, but expects it to shrink gradually as a share of GDP in 2013-17.

Key changes from last month

Political outlook

In view of its reduced parliamentary majority, the PoR could find it harder than before to maintain support in parliament, if pursuit of austerity measures alienates erstwhile allies.

Economic policy outlook

The defence of the official exchange rate continues to come at a high cost. Although currency control measures stabilised the hryvnya, an attempt at a controlled devaluation is now likely in early 2013.

Economic forecast

In the third quarter of 2012, real GDP contracted by 1.3% year on year. The fall would have been more drastic but for the artificial boost to household spending from a pre-election public spending spree. We estimate real GDP growth in 2012 at 0.6%. In 2013 a modest pick-up in external demand, alongside currency depreciation and a resumption of IMF lending, should produce a modest resurgence in economic activity.

Do to the nature of this product there is no table of contents.