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Ukraine Business Forecast Report Q4 2012

Ukraine Business Forecast Report Q4 2012 - new country guide report published

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2013-01-01 02:48:56 - Ukraine Business Forecast Report Q4 2012 - a new country guide report on

In line with our view for a sharp slowdown in growth, Ukraine posted its slowest ever quarterly real GDP growth in Q112, at 1.8% year-onyear (y-o-y). We expect real GDP to expand by just 2.0% in 2012, and 0.9% in 2013. We maintain our expectations for growing external account imbalances to drive a devaluation of the hryvnia by end-2012. We see political risks as likely to grow over the next 12 months. The imprisonment of former prime minister Yulia Tymoshenko has severely soured relations with the EU, while bilateral relations with Russia remain tense over the issue of Ukraine´s gas imports.

Major Forecast Changes

We have downgraded our outlook for real GDP growth for 2012 and 2013. We forecast real GDP



growth in 2012 to come in at just 2.0%, from 2.5% previously, and 0.9% in 2013, from a previous forecast of 3.4%. This change reflects our bearish outlook for global metallurgical markets next year, our expectations for hryvnia devaluation, and expectations of a retrenchment in government spending. We now expect Ukraine´s fiscal deficit to come in significantly wider in 2012 and 2013, to 3.3% of GDP and 4.2% respectively. Weak revenues and imprudent social spending will drag the deficit higher this year and borrowing costs will remain extortionate.

Key Risks To Outlook

A sharper-than-expected devaluation could trigger major shockwaves through the domestic economy, particularly within the financial sector which has barely recovered from the 2008 devaluation. Existing capital buffers may prove insufficient to deal with a devaluation of 20% magnitude or greater. The main upside risks to our forecast arrive from China´s US$158bn infrastructure programme, announced at the start of September. While Chinese markets are barely linked to Ukraine´s steel sector, the announcement could help to boost slumping steel prices in increasingly globalised markets, in turn providing some support to Ukraine´s exports.

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Mike King
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