Ukraine Country Report Feb21 - February, 2021

February 8, 2021

For an outlook of what bne IntelliNews expects this year read our 2021 Outlook

Ukraine was hit hard by the coronacrisis, but the economy weathered the story surprising well at the end of the day.

The World Bank also estimates the fall of the Ukrainian economy in 2020 at 5.5%. The official forecast for the 2020 contraction in Ukraine's GDP in 2020 is for 4.8% at the end of the year and 4.6% of positive growth in 2021, according to the Ministry for Development of Economy, Trade and Agriculture of Ukraine

The National Bank of Ukraine (NBU) had previously separately forecast the economy to decline by 6%, but towards the end of the year it improved its estimates, to about 5%, predicting a recovery in 2021 by 4.2%.

The outlook for 2021 is for a bounce back that will get underway in the first quarter of the year, depending on the dynamics of the coronavirus pandemic. Infection rates were falling in the last months of 2020, but Ukraine has been unable to secure supplies of any vaccine and will be one of the last countries in Europe to roll out its mass immunisation programmes, after it refused Russia’s offer of the Sputnik V vaccine.

The World Bank revised upward its forecast for Ukraine's growth in 2021 to 3.1% from its earlier forecast of 1.5% issued in October, according to the January 2021 World Bank's Global Economic Prospects, Interfax reported on January 6.

The y/y dynamics of Ukraine's main industries improved across the board in December. Industrial output climbed 4.8% y/y in December after a 0.3% drop in November, driven by improvement in both the mining and quarrying and the manufacturing sectors. Industrial output was still down 5.2% in 2020.

Construction output growth accelerated to 9.9% y/y in December from 9.3% in November (for 4.0% growth in 2020), retail trade growth climbed to 13.4% from 12.1% (8.4% in 2020) and growth in the agricultural sector surged to 26% from 11.3% (however, output dropped 11.5% in 2020 due to a drought in the middle of the year).

The strong recovery in 4Q20 has helped to offset the contraction in 9m20. While the economy still shrank last year, the decline in GDP will likely be close to 4.5%, which is better than we had expected previously. This year, we expect GDP to recover by 4%.

Real wages rose by 10% last year, compared to 2019, reports the State Statistics Service. In nominal terms – without adjustments for inflation – December’s average salary was up 15.6% y/y. Nationwide, the average monthly salary was $506, almost three times the official minimum wage. Medical professionals enjoyed the biggest jump in salaries last year – 51%. Hotel and restaurant workers saw the worst performance – a 6% salary drop.

The bad news is that inflation is back, after being crushed by the National Bank of Ukraine (NBU) in the last two years and that has brought the easing cycle to an end.

Inflation was 5% in 2020. This year, analysts at Sberbank expect inflation to climb toward the upper end of the NBU's target range of 4-6% amid a recovery in consumer demand and hryvnia weakening. Ukrainian consumer prices rose 0.9% m/m in December versus a 0.2% m/m decline in December 2019, pushing y/y inflation up to 5.0% from 3.8% in November.

Core inflation, which excludes the most volatile components, climbed to 4.5% y/y from 3.9% in November. The acceleration was mainly due to higher food inflation, which rose to 4.9% y/y in December from 3.2% in November amid rising global food prices.

The political situation continues to deteriorate as the number of scandals grows. Ukrainian president Volodymyr Zelenskiy honeymoon period is long over and his failure to deliver on his campaign promises of raising incomes and killing corruption has seen the support for his Servant of the People (SOTP) sink in the polls where it is now ranked fourth after the former President Petro Poroshenko’s party and the pro-Russia parties.

Zelenskiy himself remains the most popular politician in the country and would comfortably win re-election if a vote were held tomorrow, but his popularity has also been falling a the number of Ukrainians that think the country is going in the “wrong direction” rises back towards the level it was at before Zelenskiy took over in 2019.

The practical upshot of the ruling SOTP falling popularity is the party has fragmented with deputies splitting off and backing the various oligarchs that have almost 200 proxies in the Rada of 450 deputies. That means Zelenskiy no longer has a majority in parliament and cannot ram new legislation through without the support of the liberal parties of Poroshenko or opposition leader, former Prime Minister and head of Batkivshchyna (Fatherland) party Yulia Tymoshenko.

The oligarchs are becoming a serious problem and it appears that Zelenskiy is now in open conflict with his former mentor oligarch Ihor Kolomoisky. Zelenskiy banned three TV stations under the control of Viktor Medvedchuk, the head of the Political Council of the Opposition Platform, For Life Party in January, who in response is trying to impeach the president. (It will fail as the Opposition Platform doesn't have enough votes.)

Ukraine’s economy will be lifted by the return to normalcy, but the boom that should come with far ranging reforms is unlikely to appear this year.


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