Ukraine Business Forecast Report Q4 2011 - new country guide report published
2012-05-31 19:39:07 - Ukraine Business Forecast Report Q4 2011 - a new country guide report on companiesandmarkets.com
Ukraine´s economic recovery lost some momentum heading into the second quarter of 2011, and a deteriorating global growth outlook bodes poorly for the highly trade-integrated economy.
We believe that Ukraine will ultimately undertake the reforms spelled out under its US $15.2bn Stand-By Arrangement with the IMF. Continued cooperation with the IMF is crucial to anchoring confidence in Ukraine´s economy and underpinning
macroeconomic stability, and this should spur policymakers.
With no elections on the calendar until October 2012, Ukraine is enjoying its longest election-free period since before the 2004 Orange Revolution. President Viktor Yanukovich is likely to continue a process of consolidating political power in the presidential office while allowing lower-ranked deputies in the legislative branch of government to take the heat for politically unpopular reforms. We caution that the risk of non-implementation of domestic gas price hikes under the above-mentioned IMF Stand-By Arrangement is a real risk, as this could strike a chord with domestic voters and breathe new life into the opposition, which has struggled to find a catalysing issue.
Major Forecast Changes
We have downgraded our 2011 real GDP growth forecast to 4.0% (from 4.4% previously) in light of a weakening global growth picture. Household consumption, thus far buoyed by rising real wages, also seems to be cooling materially. I n line with greater expectations for lower export growth, we have also revised upwards our expectations for Ukraine´s current account deficit, now seeing the shortfall ring in at 4.3% of GDP (up from 3.2% previously).
Key Risks To Outlook
To us, the key risk to our outlook for Ukraine stems from the possibility that returning economic growth saps momentum for the reforms mandated under the government´s IMF agreement. A breakdown in relations with the IMF would significantly dampen the outlook for Ukraine both in the short term through capital flight risks, and over the long term as structural reforms fall by the wayside.
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