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Sunday, December 14, 2008

Ukraine's Industrial Output Drops An Annual 28.6% In November

Ukrainian industrial production fell at the fastest pace registered anywhere in Europe in November, falling for a fourth consecutive month, led by steel, machine building and oil refining. Output shot dopwn an annual 28.6 percent, following a 19.8 decline in October, according to the Ukrainian Statistics Office last Friday. Steel production slumped 48.8 percent, oil refining and chemical output fell 35.2 percent and machine building by 38.8 percent.

The Ukrainian economy, which has been expanding at an average annual pace of 7 percent since 2000, is now “in recession,” according to Finance Minister Viktor Pynzenyk speaking on December 10. Econoic growth will probably slow to between 3.5 percent and 4 percent this year from 7.6 percent in 2007, First Deputy Economy Minister Serhiy Romanyuk said on December 3, while the economy may contract by 5 percent next year, according to Oleksandr Shlapak, the president’s deputy chief of staff, at the end of November.

Ukraine’s national currency, the hryvnia, is heading to its worse year since 1999. It lost 34 percent in October and November and has been sliding further this month. The government of the nation of a 46 million people relies on a weakening hryvnia to boost exports, said Finance Minister Viktor Pynzenyk yesterday.

Industrial output grew 10.2 percent in 2007, boosting economic growth to 7.3 percent. Piontkivska expects industrial production to contract by 3 percent in 2008, while economic growth slows to “around 4 percent.” Production increased 2.2 percent in the first 11 months of the year, compared with 10.7 in the same period a year ago, according to the statistics data.


Anonymous said...

I think you've got the Yushchenko and Tymoshenko positions reversed when it comes to the currency. Yushchenko is going after the pro-float NBU staff in support of Stelmakh. Tymoshenko is going after Stelmakh because he's a Yushchenko ally. Tymoshenko has also ingratiated herself with the IMF so she currently supports the float policy as required by the IMF program. However, she is far from dependable on econ policy and will not hesitate to turn on the IMF if its politically expedient.

Edward Hugh said...


"I think you've got the Yushchenko and Tymoshenko positions reversed when it comes to the currency. "

Well you raise a pretty interesting question, since it is very hard to decide who exactly is doing what at the moment, and this is part of the problem. I mean, I have huge difficulties and I am making considerable efforts, so god help the garden variety "investors".

I am reading this present central bank drama through two angles. The first of these is the history of the dispute inside the bank about widening the corridor which goes back much earlier this year, and the second is the fact that Yushenko seems to be arguing for a Hyrvnia rate of around 6.00 to 6.5 - which is well below the market float rate. Another factor which has lead me to my present conclusion concern the current 2009 budget - which again evidently totally breaches the IMF agreement, and appears to be supported by Tymoshenko.

Now on the exchange rate issue at the central bank, if we go back to the earlier episode in May - see my Monetary Chaos Breaks Out in The Ukraine National Bank post (link in top of sidebar) - madeit pretty clear that the bank was virtually gridlocked by factional strife between the warring political parties, with the divisions being institutionally manifested by the Bank basically having two heads, the Board and the Council. Now the Board seems basically to support Stelmakh, while the Council - headed by Petro Poroshenko - is the focus of opposition to Stelmakh, although at the time I wrote the original post I couldn't work out who Poroshenko was "loyal" to, and in my innocence (since I am NOT any kind of political specialist) I imagined they might be allied with Viktor Yanukovych and his party of the regions. I sort of reached this conclusion due to the similarities between the kind of "tight corridor" arguments being offered by Poroshenko - they were resisting any flexibilising of the currency, let alone float - and the view of the Russian national bank at the time.

Of course all this stupidity has now lead to total catastrophe in both cases, since all the inflation tolerance involved simply sent the system off into "this is not sustainable" mode.

Volodymyr Stelmakh had been pushing since late April for "moves" on the exchange rate front. Then in May Stelmakh moved and widened the band (backed by the board) while the bank`s council (yes, note the COUNCIL - not the board) explicitly repudiated Stelmakh and rejected the idea of broadening the band on the very same day. From that moment on it has been clear that monetary policy at the Ukraine National Bank was destined for a very bumpy ride, and so it has been.

Poroshenko seems to have been the focus of anti IMF activity - since he has once more been actively attempting to get the Hyrvnia back up, and in particular doing this by intervening, yet Tymoshenko seems to have been strangely silent on all this.

I mean the basic and obvious point here is that - after all that inflation - the hryvnia needs a large and substantial devaluation, and while 10 to the USD is evidently the normal overshoot you expect to see in these circumstances, 8 seems to be about right, so I don't know what Tymoshenko's issue is, and why, if she is trying to implement the IMF backed float she is so critical of Stelmakh, nor who, if this was the case, is supporting the intervention - which goes expressly against the IMF agreement.

Basically I see Tymoshenko as some kind of demagogic populist - very similar in my view to Argentina's Cristina Fernandez - who uses the language of "preserving social spending" while the economic stability of the country which is the only real guarantee of any kind of social spending at all is basically left to go to wrack and ruin.

Ukraine's problems at this point in time are huge, maybe the most severe of any major country entering this crisis, and - given the demographic backdrop - may even be fighting for its life, while the politicians are fiddling around and playing with details to suit their own particular interests.