KIEV, Sept. 17 – Ukraine’s manufacturing output contracted 4.7% on the year in August, led by weakening steel exports, presenting new challenges for the country’s government as it struggles to attain budget revenue forecasts.

The plunge accelerated from a 0.9% on year decline in July, a sudden drop that had prompted pessimistic remarks and comparisons to the major economic slump recorded after the 2008 crisis.

“The second wave of the crisis is currently very seriously going through Ukraine,” Prime Minister Mykola Azarov said at an international conference in Yalta over the weekend. “I wouldn’t say the second, but the continuous crisis.”

The comments come in line with remarks recently made by Azarov at a closed meeting of the government, when he said the economic situation was “not just bad, but very bad.”

The National Bank of Ukraine admitted earlier this month it had been forced to intervene to sell U.S. dollars to support the hryvnia to stop recent panic on the forex market.

Ukraine’s exports of steel have been declining this year amid weakening demand for the commodity due to unfolding debt crisis in Europe and fears of looming recession in the region.

Steel is the backbone of the Ukrainian economy and weakening sales have a dramatic impact on the government’s budget revenue collection and may have serious impact on the value of the hryvnia, the local currency.

Ukraine’s exports of ferrous metals, mostly steel, including goods made from ferrous metal, fell by 9.4% year-on-year to $9.87 billion in January-June, down from $10.89 billion a year ago, according to the State Statistics Committee.

In an attempt to support the domestic steel sector, Azarov said the government would consider increasing spending on construction of affordable housing and infrastructure projects. He also said imports of certain steel products will be banned to allow domestic companies sell more.

Azarov said the projects would help Ukraine to make sure that the world credit crisis of 2008, which had forced the Ukrainian economy to contract 15% on the year in 2009, will not be repeated in 2012.

“Economic performance is dependent on the highly cyclical steel sector, and growth is sensitive to a downturn in the global economy or a eurozone growth shock,” Fitch Ratings said in July.

Ukraine’s economy will expand 2.4% in 2012, but will accelerate growth to 3.5% in 2013, reflecting likely stronger external demand for steel, Fitch said.(tl/ez)