Ukrainian economy is to deliver moderate (2.7%) growth next year, bouncing
back from distressed levels. Consumption would remain broadly stable in
nominal terms providing opportunities for import substitution. Growth is to
be net-export driven.
Some adjustments take place in current account and export mix, improving
resistance to possible fluctuations on steel market. Still, vulnerability of
Ukrainian economy to movements of global steel prices remains
pronounced. Ukraine would see C/A surplus next year due to weak currency.
Ukraine will go through election cycle in early 2010, while the IMF
cooperation is likely to be frozen for some time.
Public finance will see the second consecutive year of double-digit deficits
as a percentage of GDP. The budget is likely to be redrafted with
participation of IMF technical experts over 2010.
CPI is declining due to subsiding pressures on demand side, but it would
remain high slipping in single-digit zone only in 2011.
Local currency is cheap comparing to CEE peers, but high public deficits
coupled with Ukraine’s sensitivity to global conjuncture introduce downside
risks over the course of 2010.
Banking system can cope with asset quality, albeit it might still need capital
injections and would not be able to restore growth soon. Central bank
should seek ways to inject UAH funding to the system.
Domestic interest rates are well in double digits and would remain high in
1H2010 due to crowding-out by public debt, de-leveraging of external debt
and limited inflow of deposits to domestic banking system. From 2H2010
onwards we expect domestic rates to decline.
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