What will the situation be with Ukraine’s economy over this year and the following two? When will GDP stop contracting? When will consumer demand begin to pick up and what will wages be like? The answers to these questions were sought by ICPS economists along with their colleagues at the latest quarterly consensus seminar in macro-economic forecasting, organized by Ukraine’s Ministry of Economy on 2 July 2009.

2009: Ukraine’s economy stabilizes

Ukraine’s economy is currently in the process of stabilizing and the first signs of its gradual adaptation to external shocks are evident. Some experts even expect business activity to begin picking up again in H2’09.

In 2009, the pace of growth of prices will slow down. The restraining factors will remain to be contracting consumer demand as disposable incomes shrink and restricted access to consumer credit. At the same time, some economists say that inflationary processes will pick up as the cost of fuels continues to rise on the domestic market.

Given the crisis going on in the real sector, enterprises are likely to continue to reduce wages, increases and bonuses for employees and to place a significant portion of their workforce on forced leave.

In 2009, the negative impact of falling external demand on Ukraine’s economy will also grow due to declining investment activity. The real decline of investment in 2009 could range from 12% to 42%. The main factor hampering investment in 2009 will be the lack of capital.

2010: Ukraine’s economy revives

The main driver of economic growth will be the revival of external demand for commodities. Most economists predict positive GDP growth for 2010, provided that the world economy picks up and those of Ukraine’s key trading partners, along with an improvement on external markets for Ukraine’s exporters.

The forecast group was unanimous about the likelihood that industrial inflation will pick up pace in 2010 compared to 2009 as world prices on commodities markets begin to pick up again and production costs grow.

Compared to the April consensus forecast, the participants at this seminar were much more positive about external trade activity. For instance, in April the group of economists predicted gloomily that export and import volumes would continue to fall for goods and services alike. In July the various organizations predict that, even according to the most pessimistic forecasts, exports should grow a minimum of 5.6% next year, while imports will inch up 0.1% at least. The most optimistic forecasts place export growth at 27.2%, with imports jumping 24.3%.

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