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Monday, May 25, 2009

Horrid Outlook in Ukraine

By Claus Vistesen: Copenhagen

Not to beat a dead horse or anything, but it seems that Krugman, via Edward, was right after all. This does indeed seem to be a great depression if there ever was one.

(from Bloomberg)

Ukraine’s economy probably shrank as much as 23 percent in the first quarter of the year as the global financial crisis took its toll on the eastern European nation, President Viktor Yushchenko said. “The economic contraction is expected between 20 percent to 23 percent in the first three months of the year,” said Yushchenko today, according to a statement posted on his Web site. “The pace of the decline is one of the fastest in Europe.”

Yushchenko urged the government to review the state budget for this year, which still assumes the economy will expand 0.4 percent, according to the statement. A global recession is compounding problems in eastern European economies, which are being battered by a lack of credit, weakening currencies and plunging demand for their products. Ukraine was forced to turn to the International Monetary Fund with other emerging-market countries, including Hungary and Latvia, to boost its financial system in November.

Ukraine’s economy shrank 8 percent in the fourth quarter, the first contraction since 1999. The state statistics committee is expected to release gross domestic product figures for the first quarter in late June.

Of course, we need confirmation and I would not be surprised if the number reported by the government turned out to be wrong (in either direction!), but the the initial shot across the bow suggests a veritable collapse.


Anonymous said...

How do you intend to report on Ukraine in future? Government data that comes with a 3 month delay and ever closer to the elections will be highly unreliable. Can you rely on sources like Export & import from neigbouring countries to Ukraine? Postponing the data was a first act by the government to get control over the numbers rather then the economy.
How can a pennyless government continue to meet it's obligations which such dramatic declines? Renaissance capital thinks the real number is closer to 30% GDP decline. I doubt the IMF money agreed when a much smaller GDP decline was expected will be sufficient. What road is left for a government in this situation? Even when making abstraction of the looming election.

Hynek Filip said...

Anonymous, the IMF money will not be sufficient, and it will most likely be the EU that will cover the deficit.

My own scenario is as follows:

Russia will again close the gas pipelines to Ukraine, through which about one third of the EU consumption is supplied. It now seems that Gazprom may do it as soon as this coming June. And, surprisingly enough, Putin will humbly ask the EU to kindly pay the Gazprom bill (and other Ukraine bills, for that matter).

In fact, the EU has already gone so far as to consider and very very weakly reject this option. The language used is about as strong as if they said "if you press a bit more, we will pay".

Given that the price of crude oil is going up very quickly indeed, and the higher the price, the stronger the Russian bear, we will be paying for Ukraine before the year is out.

And if anybody doubts the willingness of the EU to strike a less-than-favorable, backs-to-the-wall deal with Russia, look at the just announced Opel/Magna deal. In fact, it is not Magna, who will get the majority in Opel, but the lions share of 35% goes to... the Russian Sberbank, owned by the Russian government.

Anonymous said...

Well, the economy is hit hard and the development pushed back. But nobody is suffering from hunger - unlike in Africa.

Anonymous said...

They(Russia) wont close gas tap for June that's confirmed. Nobody starving in Ukraine compare to other developed countries Ukraine fares badly because of political instability and immaturity in economic thinking. Its only a baby born in 1991 without parents. Great potential though. But it does need 3 generations to fire well. Remember Spain early 80 or Greece . Ukraine have rich soil some infrastructure but unstable politics and mentality of Ukrainian people needs changing . I will give them another 20 years and they will be alright

Anonymous said...

Since the beginning of 2009, Ukraine has printed more than $3 billion worth of the national currency, the hryvna, to shore up its economy.
These measures, along with its huge debt to Russian gas monopoly Gazprom, have many experts saying the country is on the verge of bankruptcy.

quote of the day at Kiev Post: How can the government and Naftogaz play such extraordinary tricks with gas payments to Russia, when the whole country owes Hr 26 billion for gas? Every month the debts are growing, accumulating, and turning into a real tragedy."
Yulia Tymoshenko, scolding the nation's governors in a June 19 meeting for unpaid gas debts by regional and municipal gas companies.

Yulia Tymoshenko has the extraordanary capacity of scolding the government when she actually heads the national government. She really leaves no space for an opposition leader.
Expect the grivna to devaluate further if the govenment pays it's bills by printing money. Then again borrowing is not an option.

Hynek Filip said...

Well, it would now seem that we will be paying for Ukraine before this coming July is out. The Slovak government is already warning of Russia closing the pipes in the first week of July.

If the Russians do so (and I am very much convinced that they will), then the only realistic way to get gas to a significant part of the EU (including Slovakia, Hungary, Bulgaria, part of Austria, most of the Czech Republic, and even part of Germany) will be to pay the Ukrainian debts.

Of course, there is the "Swedish option", namely the most ingenious idea that Russia and Ukraine sort out the problem between themselves.

In that case, most of the CEE would really be grateful for quite some global warming, and quick.

Anonymous said...

In an interview with Ukraine’s Dzerkalo Tyzhnia newspaper published on June 28, Volodymyr Stelmakh, chairman of Ukraine’s central bank (National Bank of Ukraine), said Ukraine’s financial system was stabilizing after being shaken up hard by the global financial crisis and economic recession.
How serious should one take this?

Anonymous said...

maybe time for an update? Here are official numbers.
Ukraine's GDP in January to March 2009 fell by 20.3% year-on-year, according to a statement on the State Statistics Committee's official Web site.
The statement reads that the indicator reflects changes in volumes as measured in prices set in 2007
Not that I would trust them...

Anonymous said...

Good news from Ukraine.

Industrial production in Ukraine in June 2009 fell by 27.5% compared to June 2008, which is better than the figure for the two previous months, which was 31.8%.

The State Statistics Committee reported on Wednesday that in H1, 2009 the fall in industrial production in the country year-over-year slowed to 31.1%, while after the first three, four and five months it was 31.9%.

Anonymous said...

I wonder when you post another update? Increasingly I see a return to super rich and super poor. The middle class is evaporating and the lack of a quick recoveery means that businesses continue to default.

Anonymous said...

Total industrial production in Ukraine in January-September 2009 dropped by 28.4% year-on-year, the State Statistics Committee said in a statement.

In September, industrial output shrank by 18.4% in comparison with the same period of 2008 but increased 1.9% from August.

In 2008, total industrial production in Ukraine shrank by 3.1% in comparison with 2007. In 2007, industrial output increased by 10.2%.