Ukraine Business Forecast Report Q2 2008

Publication Date	March 2008
Publisher	Business Monitor
Product Type	Report
Pages	55
ISBN Number	1745-0756
Product Code	BMI00747

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Summary

A Testing Year Ahead

Ukraine's Economy and Political Leaders Will Be Put to The Test in 008, with A Series of Legislative and Economic Reforms Likely to Prove Vital for The Economy's Future Performance and The Government's Ability to Manoeuvre The Legislature Ahead of Presidential Elections in 009. in The Ukraine Business Forecast Report Q208, We Explore The Obstacles in The Way of Far-Reaching Reforms and The Regulatory Shortcomings of The Country's Business Environment, Which Will Likely Keep Ukraine at A Disadvantage on The Eve of Wto Membership. Although Investment Flows into The Country Will Likely Remain Robust, We Believe That A Disproportionate Reliance on A Single Group of Commodities for Exports and Spiralling Inflation Create The Risk of A Considerable Deterioration of Ukraine's Macroeconomic Fundamentals This Year. The Risk Is Amplified by Increasingly Populist Fiscal Policies Being Proposed by Yulia Tymoshenko's Government, at A Time When Rivalries between The New Prime Minister and President Viktor Yushchenko Are Set to Intensify.

Just over One Month into Yulia Tymoshenko's Premiership, Ukraine's Political Leaders Appear to Be Gearing up for The Presidential Race, Which Could Be as Early as 009. This Has Already Exposed Existing Rifts in The Marriage of Convenience between Prime Minister Tymoshenko and President Yushchenko, Which We Widely Expect to Intensify in The Months Ahead. Ukrainian Politics Will Remain Eventful and Adopt An Increasingly Two-Dimensional Tone in The near Future, as The Two Leaders Compete for Political Influence. at The Same Time, The Fragile-Looking Government Will Seek to Push through Much-Needed Reforms in A Parliament in Which It Holds Only A Small Majority. Government Efforts to Lobby for A More Effective Legislative Reform Process Going Forward Will Unlikely Be Aided by The Stubbornly Fractious Nature of The Political Landscape.

While We Currently Expect Ukraine's Macroeconomic Fundamentals to Warrant An Additional Year of Solid Economic Growth in 008, We Are Concerned That The 8.1% Increase in Gas Import Costs from Russia This Year, to Us$179. 0 per 1,000 Cubic Metres of Gas, Will Weigh on The Economy.

Our Data Forecasting Model Revealed That A Gas Price Shock of This Magnitude Will Drag Real Gdp Growth below The 7.0% Mark This Year, Much as The Ukrainian Government Is Currently Expecting.

This Would Be Accented by Oil Prices Likely Remaining above Us$90/Bbl. We Believe That Ukrainian Economic Growth Will Struggle to Remain above 6. % in 008, Due to The Increase in Operating Expenses on The Back of Higher Energy Costs.

The Working Party of The Wto's Accession Committee Approved Ukraine's Membership Bid on January , following Negotiations in Which Brussels Demanded A Binding Commitment by Ukraine to Reduce Existing Duties on Exports. The Move Paves The Way for Ukrainian Membership of The Multilateral Trade Organisation. The Recommendation of The Accession Committee Was Endorsed by The Wto's General Council on February , after Which Ukraine Will Have until July to Comply with The Outlined Trade Policy Reforms, as Part of The Entry Requirements. Ukraine Would Officially Become A Wto Member State 0 Days after The July Deadline. Ukraine Currently Has Duties on Exports of Live Cattle, Animal Skins as Well as Ferrous and Non-Ferrous Particles.

Content

Executive Summary
- A Testing Year Ahead
Chapter 1: Political Outlook
- Swot Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Rift to Stall Reforms
- A Set of Political Victories for Prime Minister Yulia Tymoshenko, and President Viktor Yushchenko's Diplomatic
- Overtures to Ukrainian Business in The East, Put The Two Political Leaders at Loggerheads for The Presidency in
- Upcoming Elections.
- Table: Ukrainian Cabinet & Other Key Posts
Chapter 2: Economic Outlook
- Swot Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Metals Key for More Solid Growth
- Ukraine's Economy Looks Set to Continue Expanding at A Solid Rate in 2008. Although Higher Energy Costs Will
- Weigh on The Growth Rate, We Believe That High Metals Prices and Strong Domestic Demand Will Keep The Economy's
- Expansion Rate Elevated.
- Table: Economic Activity
- Balance of Payments
- Sharp Deficit Widening Ahead
- Ukraine's Current Account Will Remain The Economy's Achilles Heel, with An Undiversified Export Sector Offering
- Little Support amid An Expected Weakening of The External Sector.
- Table: Balance of Payments
- Monetary Policy
- Inflation: Alarm Bells Ringing
- with Supply-Side Price Pressures Ongoing, A Proposed Loosening in Government Social Spending Programmes
- in 2008 Creates A Series of Structural Risks to Price Stability. The Proposed Compensation of Some Us$4.
- Table: Monetary Policy
- Exchange Rate Policy
- Uah Band to Widen in 2008
- despite Growing Pressure on The Ukrainian Hryvnia to Appreciate, We Believe That A Widening of The Current
- Trading Band Is The Most That Can Be Hoped for This Year.
- Table: Exchange Rate Policy
Chapter 3: Special Report
- Looking beyond 2008
- The Future of The World, in Three Acts
- We Believe That A Substantial, Multi-Year Shift in The Us External Accounts Is under Way.
- Us: The Rebalancing Act
- Unwinding The Imbalances
- China: What If We're All Wrong?
- Our Core Scenario for China
- We Are Retaining Our Positive Headline Growth Projections for China across The Forecast Period to 2012, with
- Our Expectations of The Continued Success of The Urbanisation Process and Export-Driven Growth Model
- Underpinning Our Assumptions. Japan: Immigration Key to Long-Term Growth
- Demographic Woes Portend Long-Term Decline
- Immigration Remains The Only Realistic Way That Japan Can Overcome Its Long-Term Economic Challenges.
Chapter 4: Business Environment
- Swot Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook - Q2 2008
- Table: BMI Business & Operational Risk Ratings
- Institutions
- Table: BMI Legal Framework Ratings
- Infrastructure
- Market Orientation
- Table: Emerging Europe, Annual Fdi Inflows
- Table: Top Export Destinations
- Table: BMI Trade Ratings
- Operational Risk
Chapter 5: Key Sectors
- Telecoms
- Executive Summary
- BMI Estimates That The Number of Internet Users Grew by 17.8% in 2007, and Our Latest Projections Suggest
- That by The End of 2012 There Should Be Almost 11.5mn Internet Users Accounting for A Penetration Rate of
- over 25%.
- Table: Ukraine Telecoms Sector Internet Historical Data & Forecasts
- Food & Drink
- Executive Summary
- BMI Estimates That Total Food and Drink Consumption Will Have Hit Us$16.20bn in 2007, Roughly Double The 2002 Figure in Us Dollar
- Terms.
- Table: Ukraine Mass Grocery Retail Value Sales by Format (Us$Bn) - Historical Data & Forecasts
- Table: Sectoral Trade Indicators - Export, Import and Balance Value (Us$Mn)