Hopes for an economic rally rise
People are calling the new Verkhovna Rada the “green (or mad) printer”: green for the Sluha Narodu’s party colors, and printer due to the speed at which this legislature is spitting out bills. Debates over legislation are very brief and largely token, which means that Ukraine will likely discover that many laws and amendments are flawed. Still, such a pace of work has never been seen in Kyiv before.
Economic numbers remain largely good. The grain harvest was reported up 15.7% y/y by September; the hryvnia remains strong, fluctuating slightly above UAH 25/USD; consumption was growing at +11.8% y/y in Q2; the CAD is smaller than expected; and inflation continues to slow.
Nevertheless, the solid core of the economy—industrial output—is stagnating, at +0.1% y/y by August, complicated by the situation on global markets, and the stronger hryvnia.
In light of strong Q2 results, and yet another record high grain harvest, we have upgraded our GDP forecast slightly, to 3% y/y, from 2.9% y/y for 2019. However, weak industrial performance makes it hard to be completely optimistic.
Prospects for 2020 are clouded by the looming launch of Nord Stream II, which will cut into export proceeds and dampen the transportation sector. However, the delayed launch of Russia’s new pipeline has encouraged us to revise upward our GDP estimate for 2020, to 2.6% y/y from 2.1% y/y.
The Honcharuk cabinet is projecting 3.7% y/y GDP growth for 2020, in anticipation of a speedy advance of reforms expected to deliver early results next year. We do not reject this scenario out of hand, because the “green printer” really is working hard. But right now, such a growth trajectory should be seen as optimistic, given nearly three decades of failed attempts to pull off a real development jump in Ukraine. Still, we’re keeping our fingers crossed.
Now read on...
Register to sample a report