Thursday, May 29, 2014

Financial Comment - Economic progress ahead for Ukraine?

Ukraine: a lot of progress ahead
While Ukraine’s regenerated statehood is undergoing baptism by fire, it is time to look at the economic issues of the new Ukraine. On the background of the full-scale military Anti-Terrorist Operation, these issues might not be in a spotlight, but the unfolding economic picture is not for the faint of heart either.

While the Canadian and U.S. economies are gearing for 2.0%-2.5% in GDP growth this year, the range of analytical forecasts for Ukraine’s 2014 GDP is within 4%-10% contraction. The nation’s currency hryvnia has just lost more than 30% of its value to the U.S. dollar, which may be beneficial for exports but is placing severe pressure on consumers given that 42% of all loans in Ukraine are denominated in hard currency. Further pressure on consumers is coming from energy prices which will rise this year by more than 50%, according to the agreement with the International Monetary Fund (IMF). Along with more expensive imports due to the hryvnia’s devaluation, this all is likely to drive inflation to double digits this year. Add to that the never-ending gas conflict with Russia who wants to raise prices again.

So far, good economic news for Ukraine has mainly come from abroad. In particular, the country is getting financing from foreign institutions which should provide support during the transitional stage. Ukraine has already received more than $3 billion within the $17-billion two-year loan from the IMF. The World Bank Group has announced $3.5 billion in aid for Ukraine this year. The European Bank of Reconstruction and Development expects to invest around €1 billion in Ukrainian projects this year. In addition, the European Union has recently unilaterally lifted its tariffs and quotas on Ukrainian imports.

Ukraine’s economic picture may look grim, but over the past several months Ukrainians have repeatedly demonstrated their unprecedented ingenuity and resolve to overcome the hardest of circumstances. With a newly elected President, we are more optimistic about Ukraine’s future than we have in a long time.

By: Ukrainian Credit Union Limited

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