Ukraine Country Report Nov21 - November, 2021

November 5, 2021

Ukraine’s GDP picked up steam in August, increasing by 2.9% since January, compared to 2.1% from January to July.

“The economy is now in a recovery phase,” the Economy Ministry said yesterday in its monthly review. “The transition to the growth phase is predicted next year.” Last year the economy contracted by 4%. This summer, high prices for iron and steel, a bumper grain harvest and construction were locomotives for growth. Growth risks this fall are the new coronavirus and high gas prices. The Economy Ministry forecasts 2021 growth to be 4.1%.

The European Bank for Reconstruction and Development (EBRD) concurred, upgrading its outlook for this year’s growth, but at a more modest 3.5% expansion for both this year and next year.

The IMF has also become more cautious, decreasing its forecast of Ukraine's GDP growth in 2021 from 4% to 3.5%, according to the Fund's World Economic Outlook (WEO).

The economic recovery continues, buoyed by rising real incomes and consumption, but it has slowed and remains well under potential thanks to the slow pace of reforms.

However, the Zelenskiy administration scored a major coup in October by getting the International Monetary Fund (IMF) to restart its Stand By Agreement (SBA). Not only will a delayed tranche of $700mn almost certainly be paid before the end of the year, the deal was extended by six months – the old deal was due to expire in December – which lays the ground work for Kyiv to also receive the third and final payment of $2.2bn in the first half of next year.

In August 2021, almost all major economic activity, except for wholesale trade, demonstrated an increase in volume production, which was maintained at a high level in world commodity markets.

Having said that steel prices, a major export item, have cooled recently leading some analysts to say that the commodity boom is over. Nevertheless, the extra money earned from high prices has left the budget in a much more healthy state and a current account surplus.

Prime Minister Denis Shmyhal says the optimistic forecast for this year’s outlook is based on a steadily growing consumer demand, an average salary that is now above $500 per month, an increase in investment to a four-year record, and a record harvest and growth in the agricultural sector. According to the draft State Budget for 2022, real GDP growth is expected to reach 3.8%, 4.7% in 2023, and 5% in 2024.

On the political front Ukrainian president Volodymyr Zelenskiy continues to consolidate his power. The first days of November saw the start of a major Cabinet reshuffle with several ministers fired and replaced by those loyal to the president.

Zelenskiy faces the twin challenges of cracking down on the oligarchs’ power and a re-election campaign next year. He was hurt by revelations in the Pandora Paper leak that he has been making use of off shore companies, which is especially wounding as he campaigned and was elected on an anti corruption ticket.

The popularity of his Servant of the People (SOTP) party has now fallen to be on a par with the European Solidarity party headed by former President Petro Poroshenko, Zelenskiy main rival.

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