The European Bank for Reconstruction and Development (EBRD) had lowered its GDP growth forecast for Ukraine in 2012 to 1% from 2.5%, according to the EBRD's pre-election overview of Ukraine's economy.
The EBRD projects that average annual inflation in 2012 will be 4% against a previous forecast of 1.5%.
“Ukraine’s macroeconomic situation remains fragile. Latest bouts of
global and European instability and de-leveraging by the EU banks have
negatively affected Ukraine’s economy. < > Fiscal deficit is
rising as the authorities have increased social spending before the
October parliamentary elections. < > Risk of exchange rate
devaluation that could negatively affect financial sector stability is
high,” the overview says.
The EBRD predicts a return to fast growth experienced before the crisis is unlikely without deep structural reforms.
“Growth is expected to remain subdued, at around 3% in 2012-13 as
spare capacity left after the crisis is exhausted, the external
environment remains difficult and bank lending is limited. Over the
longer term, acceleration of growth will primarily depend on external
demand, but also the authorities’ ability to credibly stabilise the
financial system, pursue countercyclical macroeconomic policies based on
a floating exchange rate, and attract significant domestic and foreign
investment,” the overview reads.
The EBRD notes that improvement of the Ukraine’s difficult business environment remains a top priority.
“The justice system should be reformed to ensure that procedures for
resolution of commercial disputes are fair, and commercial courts should
be de-politicised. The government should effectively implement various
measures adopted in recent years to improve governance and reduce
corruption,” EBRD experts say.
