GDP down 16 percent in third quarter; October industrial output decline slows; Central bank sees near-term stability of hryvnia; Fitch cuts ratings, sovereign bond pressure builds.
GDP down 16 percent in third quarter
Ukraine’s real gross domestic product fell by 15.9 percent year-on-year in the third quarter, slowing somewhat from a 17.8 percent drop in April-June, as stronger foreign demand provided a boost to export-oriented industries, primarily steel. However, the improvement turned worse than analysts expected and, with detailed third-quarter GDP statistics unavailable yet, was apparently due to weaker performance in domestically-oriented sectors such as health care and education, both dependent on state budget financing. For the full year, Ukrainian GDP is expected to decline by 14 percent after growing by 2 percent in 2008.
October industrial output decline slows
Ukraine’s industrial output rose by 5 percent in October compared to September and sharply narrowed its pace of decline in annualized terms to 6.2 percent (versus a slump of 18.4 percent year-on-year in September) due to a lower comparison base. In January-October, domestic industrial production contracted by 26.4 percent. Metallurgical enterprises increased production by 7 percent month-on-month in October, taking advantage of improved raw material supplies. Food production as well as output and distribution of electricity, water and gas rose by an impressive 16 percent and 11 percent respectively over the previous month but that was attributable largely to seasonal factors, namely the increased supply of newly harvested crops (sugar beets and oil seeds) to processing plants and the beginning of the heating season. The comparison base effect is set to become even more visible in November-December, as domestic industrial output was already tumbling over the same period in 2008, bringing the full-year decline in industrial production to about 21 percent (versus a decline of 3 percent in 2008).
Central bank sees near-term stability of hryvnia
The National Bank of Ukraine’s director in charge of exchange rate policy, Anatoliy Balyuk, said he considered an exchange rate of Hr 8.0-8.2 to the U.S. dollar a comfortable fluctuation range for the national currency in the near term. He noted Ukraine’s external debt redemptions would be relatively small in the coming months, implying no strong pressure on the currency, but the volume of gas purchases from Russia, potential growth in other imports and the forthcoming repayment of customer deposits at the insolvent Ukrprombank could pose risks to the exchange rate.
Fitch cuts ratings, sovereign bond pressure builds
Rating agency Fitch Ratings downgraded Ukraine’s long-term foreign and local currency ratings to B- from B but confirmed the country’s short-term foreign currency rating at B. The outlook on the ratings is negative. Fitch cited the recent approval of an “unaffordable” social expenditures law that suspended Ukraine’s cooperation with the IMF and increased risks to the country’s fiscal financing, macroeconomic stability and creditworthiness. Following the downgrade of sovereign ratings, Fitch cut its long-term ratings on the city of Kyiv, nine domestic banks as well as several corporate bond issuers. The agency’s move increased selling pressure on Ukrainian Eurobonds, boosting their yields to as high as 15 percent from around 10 percent on selected issues in mid-October.
