Editor’s Note: Economic Snapshot is a new Kyiv Post feature on the economic situation in Ukraine.
Industrial production in Ukraine grew by 8.9 percent year-on-year in June, but the outlook has deteriorated for the second half of 2011 in line with weaker export prospects, private equity firm SigmaBleyzer said in its August report.
Analyzing the economic prospects in Ukraine, SigmaBleyzer analysts noted the “sharp economic growth slowdown in developed economies” in the second quarter of 2011 and the continuing sovereign debt crises hitting confidence in the European Union.
These and other factors, according to SigmaBleyzer, are “pointing to weaker global economic growth prospects.”
According to the report, cumulative gross domestic product growth in Ukraine stood at 4.4 percent in year-on-year terms during the first half of 2011. But “real sector data for June and July showed signs of easing domestic consumer demand.”
With prospects also deteriorating for exports, which account for 50 percent of Ukraine’s gross domestic product, SigmaBleyzer downgraded its real GDP growth forecast for Ukraine to 4 percent year-on-year in 2011.
The firm’s economists noted that state budget performance was “better than projected” in the first half of 2011, with the deficit standing at 1.7 percent of GDP, which is almost 2.5 times lower than in the first half of 2010.
“Nevertheless, the broad fiscal deficit target of 3.5 percent of GDP looks difficult to achieve due to higher imbalances” at state oil and natural gas company Naftogaz, which is importing natural gas from Russia at increasingly expensive prices.
In a bit of positive news, SigmaBleyzer revised down its annual inflation forecast to a still double-digit level of 10-11 percent, explaining that “international price pressures are expected to ease.”
But the combination of higher fuel import prices and falling hard currency inflows into the nation due to waning demand for exports could hit the nation’s currency.
“With weaker exports in the second half of 2011, strong imports, the high population demand for foreign currency and large external private debt financing needs, the hryvnia is likely to be under depreciation pressure in the second half of 2011.
The current level of international reserves will allow the National Bank of Ukraine to keep the hryvnia exchange rate stable for a while, but over the medium term some depreciation should materialize,” SigmaBleyzer concluded.
