Economical Sciences/16. Macroeconomics
Pylypchuk
Olga
National
University of Food Technologies
Macroeconomic Risks in Ukraine
The global financial crisis has exposed Ukraine’s
inherent macroeconomic risks. While sovereign and corporate bond spreads were
already widening in the first half of 2008, due to high inflation and a
widening current account deficit, the international financial crisis brought
existing refinancing risks, and risks associated with the banking sector to the
fore. Moreover, the slowing global economy led to a sharp fall in both the
price of, and the demand for steel, Ukraine’s main export.
Although
relatively strong growth is expected over the forecast period, the economy is
still over-dependent on a few low value-added sectors. This increases the
economy's susceptibility to price and demand swings, and its vulnerability to
protectionist measures abroad. Moreover, low levels of investment raise further
doubts over the sustainability of the economic recovery.
The
global economy is expected to grow faster in 2013. The European Central Bank,
the US Federal Reserve and Bank of Japan all are planning new rounds of
monetary easing to boost their economies. Additional financing of investment
projects by Chinese government could keep country’s economy from further
slowdown. However, success of these measures is not guaranteed. Thus, global economy remains vulnerable to risks,
resulting in continued uncertainties for Ukraine’s economic development in
2013.
Administrative
measures are generally ineffective in the medium-term and increase distortions
of the market in the short term. However, in the current situation they calmed
the market. This could be an indicator that at least in part surge in demand
for foreign currency was caused by short-term speculation. There is some
likelihood that the NBU will be encouraged by initial success of administrative
measures to try to keep the exchange rate for longer time.
Therefore,
the economic situation in Ukraine in the beginning of 2013 is challenging. To ensure economic growth the
Government should continue with reforms aimed at sustainable growth. It will
have to increase gas tariffs for population and energy generating companies,
which would improve fiscal situation.
Assuming
that the global economy does not weaken the Institute expects marginal
improvement of economic situation in Ukraine in 2013. Real private consumption
will remain major driving force of real GDP growth even though its growth is
forecasted to decelerate from 12.2% in 2012 to 4.0% in 2013. It will be
attributed to slower growth of real disposable income (at 4.4%), which is
likely to be explained by deceleration of wage and pensions growth. In
particular, nominal minimum wages and pensions will increase in line with
inflation, which will restrict growth of real income from these sources. Still,
wage income is likely to grow in real terms likely to some wage de-shadowing
and higher wages paid in public sectors. Another factor determining the real
private consumption growth in 2013 relates to higher households banking
deposits. Net banking lending to households are likely to be positive only
marginally. At the same time, the households are expected to reduce cash
purchases of foreign currency.
Expected
acceleration of global economy growth would result in higher Ukrainian exports
in 2013. Demand is forecasted to grow for most exports commodities. At the same
time, real exports of food products, including grain, is likely to remain at
the level of 2012. Services exports is likely to be supported by IT and tourism
services exports, while gas and oil transit could remain at 2012 level. As a
result, real exports of goods and services is forecasted to grow by 2.4.
Overall, negative contribution of real net exports is likely to narrow to 0.8
p.p. in 2013.
All
manufacturing sectors are expected to increase GVA. Export-oriented sectors’
performance is likely to be supported by price competitiveness additionally
gained due to hryvnia devaluation. At the same time, food sector is forecasted
to grow partially due to imports substitution. Deceleration of real consumption
growth would result in slowdown of retail trade growth.
In
2013 current account deficit is projected to narrow to 6.4% of GDP. Weaker
hryvnia relative to dollar will lead to limited improvement in competitiveness
as wages and other costs will continue to grow faster in Ukraine than in
trading partners. External demand and commodity prices are projected to
increase somewhat. Overall, exports of goods and services is expected to grow
by 5.4% in dollar terms in 2013. Imports growth at 6.1% in dollar terms 2013
reflects higher import volumes as well as somewhat higher import prices. Weaker
hryvnia is expected to have some impact on imports growth, but demand is
unlikely to react strongly to small hryvnia depreciation. If global economy
worsens Ukrainian exports is expected to fall significantly, but limited access
to foreign financing will restrict Ukraine's ability to pay for imports and run
current account deficit. Overall,
financial account surplus is projected to be sufficient to finance most of the
current account deficit in 2013.
If
global economy worsens exchange rate will have larger adjustment. As a result,
exchange rate may move in the range of UAH 9-11 per USD in 2013.
Therefore,
at the
end of 2013 the global economic
situation is expected to improve, which would result in acceleration of real
GDP growth to 1.3%. Real private final consumption will remain major
contributor to the growth. Investments will grow moderately due to lower
uncertainty and need to finance modernisation of equipment and technologies.
Real net exports will again make negative contribution to the growth as
external demand for Ukrainian products will remain weak but negative impact of
net exports will be lower.
Economic
development in Ukraine might be further worsened by political uncertainty and
bad investment climate. Delayed reforms, including lack of transmission to the
flexible exchange rate as well as absent increase in gas prices for population
will further threaten the economic situation in Ukraine. Under such pessimistic
scenario real GDP is expected to decline in 2013.
REFERENCES
1.
Macroeconomic risks remain high in Ukraine / [Electronic resource]. – Access mode: http://www.russkiivopros.com/index.php?pag=one&id=481&kat=5&csl=60
2.
Ukraine / Economic Policy / QFinance [Electronic resource]. – Access mode: http://www.qfinance.com/country-profiles/ukraine
3.
Ukraine risk: risk overview / Macroeconomic risk / [Electronic resource]. – Access mode:
http://www.danskukrainsk.dk/ukraine_risk.htm