FocusEconomics: Predicting an Increase for the Ukrainian Economy

emerging europe ukraine

Read the Outlook on Ukraine special report

.

After an expectedly modest increase of 1.1 per cent in 2016, the Ukrainian economy is expected to grow by 2.4 per cent in 2017 and by 3.0 per cent in 2018, according to a survey of 30 local and international economic analysts made by FocusEconomics. The National Bank of Ukraine is more optimistic and sees the economy expanding by 2.5 per cent in 2017 and by 3.5 per cent in 2018.

“The country’s recovery picked up steam in Q3 of 2016, as the GDP grew at the fastest pace in almost three years. Surging fixed investment because of an improving business climate and higher household consumption has fuelled the economy’s acceleration. Data for the fourth quarter suggests that the economy has continued on a modest recovery path with industrial production expanding at its fastest pace in eight months, in November,” says Angela Bouzanis, an economist at FocusEconomics.

In Q3 of 2016, fixed investment grew by 24.8 per cent year-on-year, up from a 17.6 per cent rise in Q2, and private consumption expanded by 4.9 per cent year-on-year, which was higher than Q2’s 4.3 per cent. Government consumption also rebounded from the 2.4 per cent contraction of Q2 to a 3.0 per cent expansion in Q3. 

“Impressive as they are, these figures must be considered in context, as both investment and consumption have undergone sustained falls in recent years; the economy is therefore still playing catch-up. The strong increase in internal demand contrasted with an ailing external sector which continued to drag in growth, with exports in Q3 falling 5.5 per cent year-on-year, compounding the 6.5 per cent fall that was registered in the previous quarter. Meanwhile, imports rose 13.9 per cent, a large jump from the virtually flat figure that was recorded in Q2 (-0.1 per cent year-on-year). In the third quarter, the external sector subtracted 6.7 percentage points from growth,” says Ms Bouzanis.

In an effort to earn fresh funds from the International Monetary Fund (IMF), the Ukrainian government passed a delayed 2017 budget, on the 21 December, after rescuing its largest bank, Privatbank, a few days earlier. The government’s cooperation with the IMF bodes well for Ukraine’s outlook and the economy is expected to continue on an upward trajectory.

“The budget targets a fiscal deficit of 3.0 per cent of GDP, meeting the IMF’s requirements, and along with efforts to clean up the country’s banking sector, should pave the way for a stalled $1.3 billion in aid from the financial organisation. Ukraine’s government is reliant on outside support for financing, however, patchy reform momentum has threatened aid and delayed payments. Continued cooperation with the IMF is crucial for Ukraine’s outlook, to ensure that the economy remains on a recovery path,” adds FocusEconomics’ Ms Bouzanis.

The 2017 budget is designed to lower the country’s fiscal burden from an estimated 3.7 per cent of GDP in 2016 to 3.0 percent. A rise in the minimum wage and pension increases are to be balanced out by greater revenues from income taxes, value-added tax and dividends from the Central Bank. In addition, the government is expected to cash in on planned privatisations and asset sales. 

“The budget assumes GDP growth of 3.0 per cent, which is a more optimistic projection than the 2.4 per cent which was forecast by FocusEconomics’ analysts and, if the recovery fails to hit this speed, some of the revenue targets could come up short. Moreover, a number of late additions to the bill complicate the spending estimates and the numbers could see revisions going forward,” says Ms Bouzanis. 

Angela Bouzanis (courtesy of FocusEconomics)

More exorbitant challenges remain. A number of tough and politically unpopular IMF-demanded reforms have still not been completed by the government, including pension and land reforms as well as a stepping-up of efforts to tackle corruption, such as jailing corrupt officials. 

“These reforms are critical to ensure continued support from the Fund, as well as to fuel sustainable growth, yet the government’s history of slow reform momentum bodes poorly for quick implementation. Additionally, there is a risk of fiscal slippage if growth or revenues fail to live up to the government’s targets. Our panel foresees a slightly larger fiscal deficit, than planned, this year of 3.2 per cent of GDP,” says Ms Bouzanis.

In December 2016, consumer prices rose by 0.9 per cent from the previous month, after November’s 1.8 per cent increase. December’s reading marked a four-month low. Inflation edged up from November’s 12.1 per cent to end the year at 12.4 per cent. Although price pressures have picked up recently, due to adjustments in gas prices, inflation remains significantly lower than 2015’s year-end result of 43.3 per cent.

“The Central Bank sees inflation ending 2017 at 8.4 per cent, which is unchanged from last month’s forecast and for 2018, the panel sees inflation easing to 7.1 per cent,” says Ms Bouzanis. 

The Ukrainian hryvnia continues to depreciate but the process has slowed down. At the end of December 2016, the hryvnia traded at 27.10 per USD. The currency has depreciated dramatically in recent years. In 2012, the hryvnia traded at 10.62 per USD. FocusEconomics expects the hryvnia to end the year at 27.97 per USD and depreciate to 29.27 per USD at the end of 2020.

RELATED ARTICLES

Anti-corruption Efforts Are the Starting Point for Further Reforms

Ukrainian Agribusiness — a Jewel in a Crown

Wheat ukraine agriculture ebrd

Ukraine’s Tech Sector Is Booming but Needs Awareness and Confidence

ukraine tech emerging europe

Ukraine’s NIX Solutions Expands to Israel and Beyond

Ukraine Is Offering Europe Unique Combat and Technological Experience

Ukraine’s Gas Industry Risks Stagnation Without Investment

Ukraine Outsourcing’s Value is Now in its Technological Expertise and Reliability

History as Destiny? Institutional Erosion in Ukraine and Poland

Ukraine’s Talented Students Are Well Served by Its Diversified Business Relevant Education

ukraine IT

Between the East and West, Geographically and Politically

Ukrainian Venture Investment Market Is Immature and Needs Growth

Naftogaz: A Good Start Has Slowed But Optimism Remains High

Closeup of pressure meter on natural gas pipeline with people on the background

Past Troubles Belie the Opportunities for Investment

A Very Good Prospect for Future Biogas Development

There Is a Move Towards Change in Ukraine

Legal Reforms are Improving the Existing Problematic Situation in the Ukrainian Agro Market

ukraine agriculture

Ukraine and Canada: A History of Settlement and a Future for Investment

From a Small Family Firm to a Top 100 Global Outsourcing Company

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

Protecting Intellectual Property to Encourage Business Confidence

Military Operations in Ukraine Have Had Some Surprisingly Positive Side Effects for Modern Businesses

Night city reflection on the river in Donetsk. Ukraine

Longstanding Early Investors Say Ukraine Offers Foreign Manufacturers Great Prospects

ukraine manufacturing

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

Ukraine Is Energy Independent in Some Sectors and Awaiting Change in Others

The Political Economy of Independent Ukraine: Late Starts, False Starts, and Last Chance?

Poland’s Business Experience Makes it a Good Neighbour to Ukraine

Changes Are Making Ukrainian Banking More Aligned with International Standards

The Innovation District IT Park Will Help Lviv Become CEE’s IT Hub

IT park lviv ukraine

The Dilemmas of Ukraine’s Economic Policy

Ukraine Continues to Make Waves as an IT Outsourcing Destination

Sirin Software — A Ukrainian Firm Conquering Global Markets

Lviv Is the Pearl and the Soul of Ukraine

Governmental Support is Vital to Fight Corruption

Europe’s Breadbasket Offers Opportunities for Investment and Diversification

Ukraine’s Pro-change Atmosphere Says “Welcome!”

lviv emerging europe

Ukraine’s Banking Sector Reconstruction Brings Asset Sales and Opportunities in Equal Measure

Gavel and Ukrainian hryvnias on a wooden table

‘Viking’ is Yet Another Way to Annoy Ukraine

Office Space Remains Available in Kyiv

Ukraine’s Government Declares Ambitious Privatisation Targets

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

The Eurovision Song Contest Is a Perfect Showcase for Ukraine’s Talent and Warmth

European Volatility Makes Economic Development Slower for Ukraine

Maidan Three Years On—What Has Changed for Ukraine?

Ukrainian Start-up Projects Recognised in the International Market but Still More Investors Needed

Startup Diversity Teamwork Brainstorming Meeting Concept

Energy Tariff Reform in Ukraine: Estimated Effects and Policy Options

A Roadmap for Reform in Ukraine and a Promise of EU Support

Changes Are Needed in Ukraine’s Economy and Business to Catch up with CEE Growth

Denmark in Ukraine: Fostering a Better Business Climate for Both Sides

Western Ukraine Could Be an Entry Point into the Country

The Stalled Conflict in Ukraine Will be Formalised

Leszek Balcerowicz: Ukraine Can Learn from Poland’s Economic History

See the New Ukraine and Benefit From the Best by Partnering or Investing in IT

Engineer proceeding to data recovery from computer

Thinking Big; Working Hard; Delivering Value to Clients and Building Relationships

quartsoft emerging europe outsourcing

Kyiv’s Mayor Is Used to Fighting to Attract Attention and Interest

KIEV UKRAINE - SEPTEMBER 8 2016: The facade of Kievrada the City Council located in Khreshchatyk Avenue on September 8 in Kiev.

SMEs Should Play an Important Role in the Economy and Export Development

Ukraine’s Economy in 2017 — When Dreams of Growth Meet Geopolitical Reality

The Human Factor is Boosting Ukraine’s Promising IT Export Sector

Start Making Connections for the Opportunities Ukraine is Currently Offering

Kharkiv region Ukraine - July 29 2016: Combine harvests wheat on a field in Kharkiv region Ukraine on July 29 2016

The Ukrainian Banking Sector Looks Set to Regenerate New Growth

Steps to Stability Marred by a Failure to Attract FDI

Danish companies Support and Assist Ukraine’s Economic Transition

President of Ukraine Petro Poroshenko and Prime Minister of the Kingdom of Denmark Lars Lokke Rasmussen during a meeting in Kiev Ukraine

Leave a Reply

Your email address will not be published. Required fields are marked *