Monday, March 30, 2015

Oops or wow!

In the previous post, we wrote that the war is taking its toll on the Ukrainian economy and provided data indicating that Ukraine’s GDP in the last quarter of 2014 dropped by 15%. Ukraine’s Statistics Service has recently reported that the country’s exports dropped by 31.2% in US dollar terms in January 2015 as compared to January 2014, while its imports dropped by 33.4%. Attention: the same indicators for the same period, but with respect to Russia: their exports are down 30.5% and imports are down 40.4%.

It has been said many times that this war is not only one of the bloodiest in the recent history, but it is also a war between two economies. Russia and Ukraine share the same long-term problem of being mismanaged by incompetent and corrupt governments. At the same time, the Ukrainian economy is historically more diversified and thus stands a better chance in the war than it might seem from the first glance. It seems as though Putin is waiting for Ukraine’s economic collapse before Russia’s economy does. But without the Russian economy being damaged by the war, the Russian trade data is indicating an even greater drop than Ukraine’s. This is revealing.

Western sanctions, which restrict sales of some high-tech equipment to Russia, and Russian “sanctions” which restrict imports of many types of foods from numerous Western countries may be partly behind the plunge of Russian imports in January. The decline of Russian exports, identical to the decline of Ukraine’s exports, shows that the Russian economy on the whole is more vulnerable than the Ukrainian one. Is this fact behind the current lull in the fighting?

By: Ukrainian Credit Union Limited

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