News Analysis: European debt crisis, global turmoil threaten Ukraine economy
by Alona Liashenko
KYIV, Nov. 23 (Xinhua) — Ukraine has shown the first signs of falling back into recession, with its gross domestic product (GDP) falling 1.3 percent year-on-year in the third quarter, the first decline in two years.
According to local economists, the festering European debt crisis poses the biggest threat to the struggling Ukrainian economy, while uncertainties over the economic conditions in most developed countries are adding to the worries.
PHANTOM OF CRISIS
In mid-November, Ukrainian League of Industrialists and Entrepreneurs chairman Anatoly Kinakh said his country might be heading for another economic downturn, as it heavily depended on the global economic environment.
“Profits from exports generate half of our economy. So the uncertain situation on global markets could trigger a repeat of the 2008-2009 crisis, when Ukraine lost 27 percent of its industrial output,” Kinakh said.
Economic indicators suggest Ukraine’s trade deficit for the first three quarters of 2012 widened by 17 percent year-on-year to 11.474 billion U.S. dollars, which is even higher than in 2008. Meanwhile, industrial output dipped 1.4 percent in annual terms during the January-October period.
“Ukraine’s industrial output fell for the fifth consecutive month in October. This figure indicates that a recession could be on the way,” Dmitry Boyarchuk, executive director of the Kyiv-based CASE analytical center told Xinhua.
However, Ukrainian analyst Mykola Ivchenko said it was too early to talk about an economic crisis in Ukraine.
“The fall in GDP during a single quarter does not mean the start of the recession. We’re just seeing the slowdown in economic growth. If the economy is down in the fourth quarter, then we can talk about a crisis,” said Ivchenko, who is the head of Kyiv-based information-analytical center Forex Club.
Ivchenko said things in Ukraine were going comparatively well in the European context, with retail trade turnover, one of the most important indicators, rising 15.7 percent year-on-year to 81.3 billion U.S. dollars in January-October.
NEW OPPORTUNITIES
Even though some changes in the country’s economy would take place in the next few months, the macroeconomic situation would likely remain relatively stable as Ukraine searched for new options to boost the economy, experts said.
The weakening of growth and demand in Europe will certainly have a negative impact on Ukraine, which exports 25 percent of its goods to the 27-member bloc. In addition, global concerns about Europe undermined international demand for major Ukrainian exports.
However, Ukraine has taken measures for sustainable development, which is one of the keys to fighting off recession.
The East European country will diversify its export markets and goods, and rely on the domestic production to tackle the global slowdown, experts say.
Ukraine will seek new partners in the Commonwealth of Independent States and Southeast Asia, with special attention being paid to China.
“I think that a projected 8.2-percent growth in China will support Ukraine’s exports,” Ivchenko said.
Ukraine is also mulling plans to promote exports of agricultural commodities, especially meat, poultry, vegetables and grain. The prospects are bright in the light of the global food crisis and rising demand.
The country will also try to increase savings by replacing imports, which absorb 59 percent of Ukraine’s economy. Reductions of energy, medicines and agriculture imports is one of the government’s main economic targets for the near future.
FLASHES OF HOPE
The full effect of the European and global crisis will likely take several months to emerge. Its severity will be determined by a number of additional risk factors in the global economy.
According to local experts, the first months of 2013 will be difficult for Ukraine, but in the second half of next year the economy is expected to increase. GDP will start growing in May or in June 2013, analysts say.
In spite of negative GDP growth in the third quarter, the Ukrainian government kept the full-year growth target for 2012 unchanged at 3.9 percent. However, according to the local analytical agencies’ outlook, the pace of economic growth in the East European country is projected at 1 to 1.5 percent this year, with quite strong potential for further growth next year.
According to government estimates, the economy will grow by 3 to 3.5 percent in 2013, while experts say the growth will not exceed 2.9 percent.
In any case, neither the government nor the experts expect a collapse of the Ukrainian economy, which was observed in 2009, when GDP shranked by 15 percent.
So, it is safe to say that, even if the GDP rate does not fully meet the government’s expectations in 2012 and 2013, the smaller growth will still keep the country afloat.
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