Academic journal article Current Politics and Economics of Russia, Eastern and Central Europe

Ukraine: Exporter Guide*

Academic journal article Current Politics and Economics of Russia, Eastern and Central Europe

Ukraine: Exporter Guide*

Article excerpt

SECTION I. MARKET OVERVIEW

Macroeconomic Performance and Other Indicators

Despite a lack of economic reforms and plummeting demand for major Ukrainian export products in 2012, Ukraine's macroeconomic indicators remained stable. Some growth slowdown became evident toward the end of the year with industrial, construction, and agricultural production declining. Trade was the only sector preventing the economy from sliding into recession, although this anchor may be short-lived.

Throughout 2012, there was almost zero inflation and an extremely stable local currency exchange rate. These policies tremendously increased mid-term financial risks leading to interest rates growth to 25-28 percent with a consequent increase in the share of bad loans. Exchange rate support led to a decrease of foreign currency reserves from $38 billion to less than $25 billion and investors' capital outflow. The situation in the economy was favorable for importers: an overvalued currency resulted in almost 30 percent processed food products import growth.

Ukrainian trade in food products developed rapidly over the past seven years. In the past this growth had been driven by a strong economy and by an increase in consumer incomes. The October 2008 financial crisis ended these rapid expansion trends and opened a period of new developments in Ukrainian agricultural and food markets. Ukraine's currency, the Hryvna (UAH), lost 63 percent of its value against the US dollar before stabilizing in the early fall of 2009. This drop significantly reduced the attractiveness of imported food products for Ukrainian consumers.

In 2012, expected GDP growth is around 0-0.5 percent. It remains on positive side, but most of the growth comes from exports of raw materials and depends on world markets. The economic situation in the domestic market remains worrisome. The performance of the food sector is tied to performance of the rest of the economy and consumer incomes. Developments in 2012 have been turbulent: due to Parliamentary elections and the Euro-2012 soccer Championship the Government of Ukraine (GOU) maintained many expensive socially oriented programs and infrastructural projects. In 2012 these programs cushioned the impact of the financial crisis on the population.

In 2010-12 the GOU continued slow tax and administrative reforms. Both had mixed success and contributed to already cumbersome business environment. Despite financial hardships, the GOU and international organizations agree on a GDP growth forecast in 2012 of a modest 0.1-0.5 percent. Together with social program reductions, this forecast gives little chance for consumer income growth and large scale recovery of the trade in food in 2013.

Suppliers of food products to Ukrainian retailers will continue to face payment problems limiting sales and assortment. The share of foreign food products will remain relatively small as well as the number of distributors ready to work in an extremely difficult environment. Despite technical barriers to trade importers of food products were able to significantly expand their presence in 2012 mostly due to pork and other meat products increases.

Despite certain stabilization, Ukraine remains in a recession. Low global demand for steel and chemical products, lack of credit, and problems in the Ukrainian financial sector are still troubling. Some unsolved budget issues remain. Ukraine has one of the riskiest sovereign ratings in the world. Agricultural production remained relatively stable. Despite formal 4.8 percent output reduction the 2012 crop was the third best in history and provided stable base for domestic processing industry. Some red meat production drop also contributed to decline.

During the 2008 crisis the real household incomes fell 6.8 percent in '09 and the foreign exchange rate depreciated over 40 percent from the onset of the global crisis in the fall of '08. In 2012 incomes are expected to grow by 15 percent (after nine percent growth in 2011). …

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