Thursday, March 19, 2015

The impact of war is becoming clear

First, The Russian Federation invaded Crimea in March 2014 and claimed it as part of their territory. They then invaded the Donbas in early summer 2014 and, by the fall of 2014, up to 40% of the Donetsk and Luhansk regions became war zones. One of the problems is that the affected areas host considerable industrial capacity of the Donbas region and account for up to 20% of Ukraine’s GDP. Large steel mills in Enakieve, Alchevsk, Makiivka and Donetsk, a giant chemical plant Stirol in Horlivka, big machinery plants in Luhansk, Donetsk and Horlivka have all stopped working, or are no longer accounted for on the Ukrainian books.

The impact of this tragedy was not so visible up until the fourth quarter of 2014 and for the whole year of 2014 Ukraine’s GDP dropped by just 6.7%. In the fourth quarter of 2014, Ukraine’s GDP dropped by 15% as compared to the fourth quarter of 2013. More numbers are coming in which continue to show the extent of the economic impact Russia’s war against Ukraine is having. In January 2015, Ukraine’s exports dropped by 31.2% as compared to January 2014, which is understandable given that the Donbas steel and chemical industries are some of Ukraine’s main exporters. This decline in exports has drastically reduced the inflow of hard currency to Ukraine, resulting in the considerable weakness of the hryvnia relative to the USD and EUR.

If Ukraine manages to avoid further declines in its economy, it is fair to expect that its GDP will have contracted by at least 15% in 2015. If the war does not protract and provided that global economic growth is stable, Ukraine’s GDP might start growing again in 2016.

By: Ukrainian Credit Union Limited

No comments:

Post a Comment