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Tuesday, March 24, 2009

12% GDP Contraction Forecast For Ukraine Economy In 2009

by Edward Hugh: Barcelona

Ihor Burakovsky, the director and board chairman of the Institute for Economic Research and Policy Consulting says that "experts" have forecast a 12% drop in Ukraine's GDP in 2009 and an 18% inflation rate. I'm not sure who the experts in question are, but the number doesn't seem unrealistic at all to me, given the data we are seeing. First some information from the Ukraine Statistics website.

During January-February 2009, indices of industrial products were 67.2% as compared with January-February 2008. This means there was a 32.8% drop in output year on year over the two months. In fact output was up slightly month on month (by 5.4%) in February, in part as a result of the demand for steel exports produced by the sharp Hyrvnia devaluation, and February output was "only" down by 31.6%, following January's 34.1% annual fall, so you could say that things were getting better, but frankly, and at this stage of the game, such finesse is a little but lost on me.

Construction output in January-February 2009 was just 42.7% of the level hit in the same period last year

In the January-February period, cargo shipments were 97.4 mln. tons, that is to say they were just 66.5% of the volume of goods transported during January-February 2008.

In January 2009, Ukraine exports were 2439.6 million dollars while imports were 2041.8 million dollars. This means that exports were down 33.4% while imports were down 56% over January 2008.

In February 2009, the consumer price was up 1.5% over January, up 4.4% so far this year, and up 20.9% over February 2008.

In January 2009 real wages and salaries of employees were down by 19.4% when compared with December 2008. Also total wages in arrears stood at 1525.1 million UAH as 1 of February 2009, up from 1123.5 million UAH on 1 January 2009 (35% increase on the month)

The unemployment rate (using the ILO methodology) for January-September 2008, on average, was 6,5% of economically active working age population. Unfortunately this is the most recent labour force survey data we have. Undoubtedly these numbers have increased significantly over the last 5 months.

In 2008, the Ukraine GDP was up 2.1% when compared with 2007, which means, if the so-called "experts" prediction is anywhere near right (and it doesn't look that unrealistic) the GDP growth chart since 1993 will look something like this, which for a comparatively poor country struggling to catch up is little short of a disaster.

Ukrainian still has not received the second installment of a $16.4 billion loan from the International Monetary Fund although Ukrainian Prime Minister Yulia Timoshenko said last week that "she is confident" it will be agreed to.

One of the sticking points with the IMF had been the projected 2009 budget, but Ukraine’s Parliament last week changed the 2009 state budget law to strengthen the central bank’s independence, meeting one key IMF demand for getting the second installment of the loan (we will remember the Parliament was debating sending the governor to prison for allowing the currency to float, again another one of the key IMF demands). Lawmakers need to pass two more bills to qualify for the $1.9 billion installment of the IMF loan, which originally was expected on Feb. 15, according to Oleksandr Shlapak, the first deputy head of the president’s staff, with the central bone of contention being the 5% budget deficit projected for 2009, and on a lot lower contraction forecast than the current "most realistic case" scenario.

Really looking at all this, what we have here is a country in total monetary, financial, and economic disarray, and this is before we even start to think about the demographic unwinding which lies ahead. No wonder Dominique Strauss Kahn recently warned of the catastrophe which looms before us. I seriously doubt any knows what to do about all this, I certainly don't. Tear my hair out perhaps. But I already have precious little left.