Ukraine President Says the Economy “Shrank by up to 30%”

Ukrainian President Viktor Yushchenko speaking in the parliament yesterday (Tuesday) called for concerted action to reverse a drop of up to 30 percent in economic output which is in the process od destroying jobs and sinking living standards. Yushenko said the country was “ill-prepared to confront a crisis” which may have lead to a fall of 25-30 percent based on figures from January-February 2009. According to the Kyiv post:

The president urged politicians to end the rows which have thwarted reform efforts as Ukraine gears up for next year’s presidential election. He also proposed political change, including the creation of a second chamber of parliament. “We were ill-prepared to confront the crisis and its first blow was painful and difficult…,” Yushchenko told deputies.

“The consequence of this was a slowdown in GDP growth in 2008 to 2.1 percent…and a destructive fall of 25-30 percent according to figures from January-February 2009.”

Growth in the first two months of 2008 was 5.8 percent.

“Before the crisis, (annual) growth rates in the Ukrainian economy stood at 6.5-7.0 percent. I believe, I am certain that this indicator will be restored,” the president said.

“We have lost our foreign markets and 60 percent of Ukrainian exports. All our foreign currency earnings depended on these markets as did the jobs of nearly two million people in steel, chemicals and related sectors.”

Well having just quoted Claus to the effect that Japan’s economy was occupying pole position in the global contraction, I would now readily have to “correct” and admit that Ukraine are obviously playing in another league, and even though all statistics in Ukraine are “political statistics”, looking at the sort of data I’ve been looking at, the order of magnitude seems about right. The contraction is massive. And even though Ihor Burakovsky’s earlier estimate of a 12% annual contraction for the year now looks to be a little dated, that was an annual (ie all 2009) forecast, and may not be that far from the mark by the time we reach the end of the year. So with that in mind, and taking into account that we have little in the way of really new data at this point, I am simply upgrading and reposting my earlier post, for those who may not have seen it.

12% GDP Contraction Forecast For Ukraine Economy

Ihor Burakovsky, the director and board chairman of the Institute for Economic Research and Policy Consulting says that “experts” have forecast a 12% drop in Ukraine’s GDP in 2009 and an 18% inflation rate. I’m not sure who the experts in question are, but the number doesn’t seem unrealistic at all to me, given the data we are seeing. First some information from the Ukraine Statistics website.

During January-February 2009, indices of industrial products were 67.2% as compared with January-February 2008. This means there was a 32.8% drop in output year on year over the two months. In fact output was up slightly month on month (by 5.4%) in February, in part as a result of the demand for steel exports produced by the sharp Hyrvnia devaluation, and February output was “only” down by 31.6%, following January’s 34.1% annual fall, so you could say that things were getting better, but frankly, and at this stage of the game, such finesse is a little but lost on me.

Construction output in January-February 2009 was just 42.7% of the level hit in the same period last year

In the January-February period, cargo shipments were 97.4 mln. tons, that is to say they were just 66.5% of the volume of goods transported during January-February 2008.

In January 2009, Ukraine exports were 2439.6 million dollars while imports were 2041.8 million dollars. This means that exports were down 33.4% while imports were down 56% over January 2008.

In February 2009, the consumer price was up 1.5% over January, up 4.4% so far this year, and up 20.9% over February 2008.

In January 2009 real wages and salaries of employees were down by 19.4% when compared with December 2008. Also total wages in arrears stood at 1525.1 million UAH as 1 of February 2009, up from 1123.5 million UAH on 1 January 2009 (35% increase on the month)

The unemployment rate (using the ILO methodology) for January-September 2008, on average, was 6,5% of economically active working age population. Unfortunately this is the most recent labour force survey data we have. Undoubtedly these numbers have increased significantly over the last 5 months.

In 2008, the Ukraine GDP was up 2.1% when compared with 2007, which means, if the so-called “experts” prediction is anywhere near right (and it doesn’t look that unrealistic) the GDP growth chart since 1993 will look something like this, which for a comparatively poor country struggling to catch up is little short of a disaster.

Ukrainian still has not received the second installment of a $16.4 billion loan from the International Monetary Fund although Ukrainian Prime Minister Yulia Timoshenko said last week that “she is confident” it will be agreed to.

One of the sticking points with the IMF had been the projected 2009 budget, but Ukraine’s Parliament last week changed the 2009 state budget law to strengthen the central bank’s independence, meeting one key IMF demand for getting the second installment of the loan (we will remember the Parliament was debating sending the governor to prison for allowing the currency to float, again another one of the key IMF demands). Lawmakers need to pass two more bills to qualify for the $1.9 billion installment of the IMF loan, which originally was expected on Feb. 15, according to Oleksandr Shlapak, the first deputy head of the president’s staff, with the central bone of contention being the 5% budget deficit projected for 2009, and on a lot lower contraction forecast than the current “most realistic case” scenario.

Really looking at all this, what we have here is a country in total monetary, financial, and economic disarray, and this is before we even start to think about the demographic unwinding which lies ahead. No wonder Dominique Strauss Kahn recently warned of the catastrophe which looms before us. I seriously doubt any knows what to do about all this, I certainly don’t. Tear my hair out perhaps. But I already have precious little left.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

6 thoughts on “Ukraine President Says the Economy “Shrank by up to 30%”

  1. This is evolution at work.

    Basically, nothing changes, until you get a catastrophe. This then kills off that which are unfit. Those which survive are those who were fit. I believe very occasionally, a catastrophe will even in one or two entities cause actual change which leads to survival.

    Ukraine will fail. It will remain as a State, but for how long? Russia looms large. In my view, the Ukraine is not politically coherent enough to survive as a nation and Russia is simply waiting there to regain what it used to possess – and that is the history of Russia; expansion, contraction, expansion again.

    Of course, in all of this, there is caused massive human suffering. The pain and loss and terrible waste of human lives and existance is totally unconsidered in all of this.

  2. Where did go the orange revolution?

    Where is Soros to save Ukraine?


    It’s a pity.

    And where is the money promised to Kosovo?

    Great results for NATO.

    But the great hope for democracy, Georgia’s Saakashvili, is busy arresting opposition politicians.

    We are all fucked!

  3. There is so much descriptive information about the crisis everywhere these days. Of course, it’s important to understand and know what’s going on, so I’m not criticizing in any way. But what I (and many others) would be interested in is economists’ thoughts about how this will end.

    What should happen in the world economy to get back to growth? What kind of growth is sustainable? Will current disbalances in world trade prevent a recovery? What structural changes have to occur?

    There are a lot of discussions about policy actions, required or taken wrongly, but this is only a part of the picture, and the whole topic is, IMO, too tactical and contextual. Something big has to change in the world, and it should become a different place. What kind of place will or should it be?

    Edward, what do you think about it?

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