Ukraine Business Forecast Report Q4
2011
Market Research Report

Ukraine Business Forecast Report Q4 2011 Market Research Report

Core Views

Ukraine's economic recovery lost some momentum heading into the second quarter of 2011, and a deteriorating global growth outlook bodes poorly for the highly trade-integrated economy.

We believe that Ukraine will ultimately undertake the reforms spelled out under its US $15.2bn Stand-By Arrangement with the IMF. Continued cooperation with the IMF is crucial to anchoring confidence in Ukraine's economy and underpinning macroeconomic stability, and this should spur policymakers.

With no elections on the calendar until October 2012, Ukraine is enjoying its longest election-free period since before the 2004 Orange Revolution. President Viktor Yanukovich is likely to continue a process of consolidating political power in the presidential office while allowing lower-ranked deputies in the legislative branch of government to take the heat for politically unpopular reforms. We caution that the risk of non-implementation of domestic gas price hikes under the above-mentioned IMF Stand-By Arrangement is a real risk, as this could strike a chord with domestic voters and breathe new life into the opposition, which has struggled to find a catalysing issue.

Major Forecast Changes

We have downgraded our 2011 real GDP growth forecast to 4.0% (from 4.4% previously) in light of a weakening global growth picture. Household consumption, thus far buoyed by rising real wages, also seems to be cooling materially. I n line with greater expectations for lower export growth, we have also revised upwards our expectations for Ukraine's current account deficit, now seeing the shortfall ring in at 4.3% of GDP (up from 3.2% previously).

Key Risks To Outlook

To us, the key risk to our outlook for Ukraine stems from the possibility that returning economic growth saps momentum for the reforms mandated under the government's IMF agreement. A breakdown in relations with the IMF would significantly dampen the outlook for Ukraine both in the short term through capital flight risks, and over the long term as structural reforms fall by the wayside.

• Executive Summary
  • Core Views
  • Major Forecast Changes
  • Key Risks To Outlook
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Politics
  • Moving Towards Crisis
  • We believe UKraine's political trajectory is coming to a head. Deteriorating relations with Russia, the EU and the US against the
  • backdrop of flagging political support at home and an increasingly risk averse external financial environment means there will be tough
  • choices in the near term
  • TABLE: Political Overview
  • Foreign Policy
  • Implications Of Tymoshenko's Arrest
  • We believe that the arrest of UKrainian opposition leader Yulia Tymoshenko on August 5 is yet another sign of power consolidation
  • measures by President Viktor Yanukovich
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Economic Activity
  • Global, Domestic Concerns Drag Down Growth
  • Following a marked slowdown in real GDP growth for UKraine in the second quarter, we are revising downwards our expectations for full
  • year 2011 to 4.0% (from 4.4% previously)
  • TABLE: ECONOMIC ACTIVITY
  • Monetary Policy
  • Rates To Remain On Hold
  • With the pace of economic growth in UKraine showing signs of slowing, we expect the benchmark interest rate to remain on hold at
  • 7.75% through the end of 2011 and beyond. A deteriorating external environment, coupled with a still-fragile banking sector and weak
  • domestic credit conditions, means that the central bank will be wont to hike interest rates unless inflation takes a distinct path upwards
  • TABLE: MONETARY POLICY
  • Fiscal Policy
  • Fiscal Forecast On Track
  • Our core scenario for a modest improvement in UKraine's fiscal dynamics in 2011 remains on course, and we are holding to our forecast
  • for the budget shortfall to ring in at 3.8% of GDP this year
  • TABLE: FISCAL POLICY
  • Exchange Rate Policy
  • UA H: Unlikely To Move
  • TABLE: EXCHANGE RATE
  • Balance Of Payments
  • Slowing Exports Bode Ill For Current Account
  • We are downgrading our outlook towards UKraine's balance of payments dynamics for 2011, as a slowing external growth profile
  • portends a larger current account deficit for the country
  • TABLE: CURRENT ACCOUNT
• Chapter 3:10-Year Forecast
  • The UKrainian Economy To 2020
  • Convergence Delayed, But Still In Play
  • UKraine's economy is set to enter a period of lower growth on the heels of the 2008-2009 global financial crisis, with the private sector
  • likely to encounter more conditional entry into tapping international financial capital markets, which we believe will anchor trend growth
  • on a much lower trajectory over the long term
  • TABLE: Long-Term Macroeconomic Forecasts
• Chapter 4: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Business Environment Outlook
  • Institutions
  • TABLE: BMI Business And Operation Risk Ratings
  • TABLE: BMI Legal Framework Rating
  • TABLE: Labour Force Quality
  • Infrastructure
  • Market Outlook
  • TABLE: Labour Force Quality
  • TABLE: Emerging Europe - Annual FDI Inflows
  • TABLE: Trade And Investment Ratings
  • TABLE: TOP EXPORT DESTINATIONS
  • Operational Risk
• Chapter 5: Key Sectors
  • Pharmaceuticals
  • TABLE: Generic Drug Sales Indicators 2007-2015
  • TABLE: OTC Medicine Sales Indicators 2007-2015
  • TABLE: Prescription Drug Sales Indicators 2007-2015
  • TABLE: Patented Drug Market Indicators 2007-2015
  • Telecommunications
  • TABLE: Telecoms Sector - Internet - Historical Data & Forecasts
  • TABLE: Telecoms Sector - Fixed Line - Historical Data & Forecasts
  • TABLE: Telecoms Sector - Mobile - Historical Data & Forecasts
  • TABLE: Telecoms Sector - Mobile - Historical Data & Forecasts
  • Other Key Sectors
  • TABLE: Autos Sector Key Indicators
  • TABLE: Food & Drink Sector Key Indicators
  • TABLE: Infrastructure Sector Key Indicators
  • TABLE: Defence & Security Sector Key Indicators
  • TABLE: Oil & Gas Sector Key Indicators
  • TABLE: Freight Key Indicators
• Chapter 6: Bmi Global Assumptions
  • Global Outlook
  • Weakness, But No Recession So Far
  • TABLE: GLOBAL ASSUMPTIONS
  • TABLE: EMERGING MARKETS AGGREGATE GROWTH
  • TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
  • TABLE: REAL GDP GROWTH CONSENSUS FORECASTS