You're reading: Government cuts 2012 GDP growth forecast

Editor’s Note: Economic Snapshot is a new Kyiv Post feature on the economic situation in Ukraine.Conceding that the global economic slowdown will have a major impact on its vital export industries, Ukraine’s government on Nov. 29 cut its forecast for gross domestic product growth next year to 4 percent from an earlier estimated 5.5 percent, Reuters reported.

“Events of recent months are forcing us to switch to a more cautious scenario,” Prime Minister Mykola Azarov told a business forum, according to Reuters. “We had expected GDP growth at about 5.5 percent next year … (but) we are looking more at about 4 percent.”

 

According to Reuters, Azarov’s more modest assessment brings the Ukrainian government into line with that of the International Monetary Fund, which viewed Ukraine’s official outlook as unrealistic.

The ex-Soviet republic is hoping to secure a resumption of credit from the IMF under a $15 billion aid program, which was suspended at the beginning of this year after Kyiv delayed structural reforms, the news agency added.

But a further cut in the forecast for next year’s GDP growth may be necessary, according to Kyiv-based investment bank Dragon Capital.

“The government’s new 2012 growth projection of 4 percent year-on-year, though coming fully in line with our forecast, does not seem sufficiently conservative given the deteriorating global environment,” Dragon Capital said in a Nov. 30 note to investors.

“Yet this move signals the Ukrainian authorities are trying to find a compromise with the IMF on key issues (except the gas tariff hike). Such an approach may enable the government to quickly unlock IMF financing should the global situation worsen sharply and/or gas talks with Russia yield no result,” Dragon Capital added.

Click on the image to enlarge

Ukraine’s economy is dominated by steel exports, making it volatile to global demand fluctuations, and the European Union, which might be headed towards a recession, is one of its main export markets.

Analysts polled by Reuters this month said growth would slow to 4.1 percent next year from 4.6 percent seen in 2011, contrary to the government’s earlier expectations of accelerated expansion.

According to Reuters, Azarov’s government is hoping for GDP growth of 4.7 percent in 2011 compared to 4.2 percent in 2010 which followed a disastrous fall of 15 percent in 2009. But the European Bank for Reconstruction and Development has put this year’s growth at 4.5 percent and at 3.5 percent in 2012.

Slowdowns have already been detected in some sectors of Ukraine’s economy. Growth rates remain higher than regional peers due to a low base effect. The nation is still crawling out of a 15 percent GDP plunge that occurred during the 2009 global recession.

Dragon Capital said: “In line with regional peers, Ukraine saw its industrial output growth slow further in October to 4.7 percent year-on-year from 6.4 percent in September, as export-oriented sectors continued to suffer from weakening foreign demand. Yet a strong agriculture harvest and buoyant domestic demand boosted real GDP growth to 6.6 percent year-on-year in the third quarter of 2011, from 3.8 percent in the second quarter of 2011, well above peers’ average of 3.2 percent.”