Dragon Capital sharply cuts Ukraine GDP growth forecast, sees big risks for economy

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Jan. 14, 2012 11:27
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Ukraine's relatively small securities market has performed poorly as of late as fears grow that the country's economy could be hit hard this year if the Eurozone falls into recession.
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With prospects for the global economy deteriorating, Kyiv-based investment bank Dragon Capital downgraded its 2012 real gross domestic product forecast for Ukraine to 2.2 percent from 4 percent, citing falling global demand for Ukraine’s top export – steel.
Speaking at a Jan. 12 press conference, Dragon’s senior economist Olena Bilan said that the key risks for the country's economy are seen in the budget sphere and the external sector. The consolidated deficit of the budget and the Pension Fund this year will reach some 3 percent of GDP, and the government is to pay large sums on foreign and domestic debts, she added.

“Despite the fact that debt payments this year are almost the same as they were last year, in January-August 2011, before the debt crisis in Europe, it was easier for the government to borrow on the foreign markets. It's unclear what the situation will be like in the future, although it is likely that no easy access to foreign and domestic resources will be seen,” Bilan said.

Commenting on foreign economic operations, Bilan said that with the present gas contract with Russia, the deficit of Ukraine's current account would reach some $11.5 billion or 6.2 percent of GDP.

She said that while earlier it was covered by capital inflow in the form of foreign direct investment (FDI) and foreign loans, a gap of some $8 billion, which has to be covered somehow, could appear in the balance of payments, taking into account the possible restricted access to foreign financing.

As reported, Ukraine's real GDP growth in 2011 accelerated to almost 5 percent from 4.2 percent in 2010. In addition, in 2010 Ukraine cut the deficit of its national budget to 1.7 percent of GDP and its direct state debt to 27.4 percent of GDP.

The deficit of Ukraine's balance of payments in November 2011 came to $870 billion, which is 44.4 percent down on the previous month, but six times up on November 2010, the National Bank of Ukraine reported on its Web site on Jan. 11.

In January-November 2011 the deficit of the balance of payments stood at $2.357 billion, compared to a $5.712 billion surplus year-over-year.

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