Ukraine’s economic recovery accelerated into the end of 2016, GDP expanding by 4.7% year-on-year in the fourth quarter, Chris Weafer, senior partner of Moscow-based consultancy Macro Advisory in Moscow said in a note to investors on March 20, adding that brought full-year growth to 2.2%, reversing the near 10% contraction of 2015. “That trend continued into 2017 but much of it is based on one-off factors,” he wrote.
“The trade blockade with Donbass is a concern; if it remains for long enough, it will hurt the economy. 2017 growth scenarios range from 1.5% to 3.0%. We have adopted a cautious approach with 2.1% for 2017, rising to 3.0% in 2018,” Weafer wrote.
He noted that Ukraine became the third-largest exporter of agricultural goods to the EU last year. Its grain harvest increased 27.5% year-on-year in 2016.
At end-December, total external state debt equaled approximately 76.5% of last year’s GDP. The International Monetary Fund (IMF) expected to pay $1 billion this month, Weafer wrote, adding that the IMF is expected to release $1 billion in March. “The question mark over further payments remains as the IMF criticises slow reforms,” he wrote, adding that populist parties are expected to fierce oppose reform legislation.
The National Bank of Ukraine is not expected to cut the key rate until the summer, primarily because of concern over the rise in inflation at the start of this year and the question mark over whether, or by how much, the government may have to allow utility tariffs to rise, Weafer wrote.
“Russian banks, which have an aggregate market share of 9% in Ukraine, are under both physical and political attack. In the face of this reality, it is expected that all Russian banks will exit,” he wrote.
The additional inflows last year were not real foreign direct investment (FDI), but money brought in by both Ukrainian and foreign owners of banks and insurance companies to strengthen capital, he noted.
“People have lost faith in all parties. Through 2016, the polls showed that the opposition parties gained from the drop in support for the president and ruling coalition. But, over the past six months, the major trend is that people increasingly disapprove of all politicians and parties, whether in government or opposition,” he wrote.
“The major opposition parties, supported by ex-Odessa Mayor Mikhail Saakashvili, continue to press for early elections to take advantage of the weak support for the government. But the threat of an early election has declined,” Weafer explained.
He noted, however, that high profile arrest for corruption is encouraging. “Although the e-declaration system was put in place last year, there is frustration that investigators are not allowed full access to all data, and few prosecutions have been brought. But, partly in response to these criticisms, the Head of the State Fiscal Service has been arrested and charged with major corruption,” Weafer wrote.