The nation's economy is poised for further growth, according to economists. The World Bank's Larysa Leshchenko says the positive trends will continue
A quick glance at Ukraine’s economic statistics leaves the distinct impression that the nation is on the verge of an unprecedented boom. While analysts say the figures may be somewhat deceptive, the country’s economic upswing can no longer be considered a rebound from record lows.
Ukraine’s gross domestic product grew by 7.6 percent during the first two months of this year compared with the same period last year. Industrial production also rose by 16.7 percent during the period, the highest growth among the former Soviet republics. Industrial output went up again in March by a striking 18.1 percent compared with the previous year.
Prime Minister Viktor Yushchenko told a German newspaper the country’s economy could expand at double the rate officially forecast this year, with GDP growing at up to 8 percent.
Tetyana Sytnyk, an economist with the International Center for Policy Studies, said Yushchenko may be too optimistic. Sytnyk said Ukraine’s macroeconomic statistics are deceiving because they are boosted by a low statistical base early last year. She said similar growth will be harder to achieve later this year as the favorable base for statistical comparison disappears.
Larysa Leshchenko, an economist with the World Bank, said Ukraine’s fast growth is also due to some temporary factors, such as part of the economy coming out of the shadow. That probably explains why tax collection during the first three months this year was 40 percent up from the same period last year, Leshchenko said.
Though analysts agree that the economy is un-likely to go on growing at the rate it did early this year, outright skeptics are hard to come by. Alfa Capital brokerage, part of the Russian Alfa group holding company, projects 3.8 percent GDP growth in Ukraine this year, while Sytnyk said her agency expects the economy to expand by 5 percent.
“The growth rate won’t be as high [as early this year] but the positive trends will remain,” Leshchenko said.
Analysts said Ukraine’s economy is now showing signs of sustainable growth after a year of surprise upswing in 2000 when GDP rose by an impressive 6 percent.
Serhy Manokha, treasurer at Raiffeisen Bank Ukraine, said he is encouraged by Ukraine’s trade surplus, stable currency and low inflation.
Ukraine posted a trade surplus of $78.3 million in January this year, compared to a trade deficit of $335 million in the first month of last year. Exports rose 32 percent, with such countries as Greece, Turkey, Italy and Germany becoming major importers of Ukrainian products.
Inflation was also sharply down from a year ago, just 2.7 percent in the first quarter of 2001, in line with the government’s target of halving inflation this year.
“I’m very optimistic,” Manokha said. “I don’t see any factors, except for force majeure, that could change the situation.”
Sytnyk said falling world prices on metals are also unlikely to halt overall economic growth. Exports of ferrous metals, which account for one-sixth of Ukraine’s industrial output, were widely seen as one of the major factors behind Ukraine’s surprise growth last year. She said a possible drop in metallurgy will be offset by growth in other industries.
She said wood, food and light industry will continue to expand, while growth in industries with higher value added, such as machine-building, will pick up speed.
A recent U.S. Department of Agriculture (USDA) report suggests that Ukraine’s farmers may also be seeing better days ahead.
USDA expects Ukraine to have its best grain harvest since 1994 this year. The report said Ukraine’s harvest of grains and legumes may reach an estimated 29.8 million tons this year, up from 24.5 million tons last year.
The World Bank’s Leshchenko said most of the growth is due to privatization and other factors. She said many enterprises have acquired effective owners, who are cutting production of low-quality and low-demand goods.
The government’s political will also played a role, Leshchenko said. Bans on barter payments and debt trading in the energy sector led to fiscal improvements.
“When the budget stops accepting payments in sugar and boots, everything falls back into place,” she said.
Analysts said Ukraine’s growth potential is being held back by relatively low investment and the country’s poor international image.
Leshchenko said domestic investment still represents a miniscule part of the potential while the country’s economic improvements are often overshadowed by political unrest.
Ukraine’s ability to attract big international players will be tested at the end of April as the country completes a tender for six regional electricity suppliers. Several large Western firms have registered to bid and a sale could send a powerful message to the international business community, analysts said.
Other big sales in the offing include Ukrtelekom, the national phone monopoly, and a majority stake in Ukrainian Mobile Communications, the country’s largest mobile phone operator.
“I’m far from drawing a picture of complete prosperity,” said Manokha of Raiffeisen Bank. “But for the first time since Ukraine became independent, there are real tendencies of economic growth.”
