Experts and business reviewed macroeconomic situation in Ukraine
The American Chamber of Commerce in Ukraine has held, in strategic partnership with the Forum for Leading International Financial Institutions (FLIFI), the Quarterly Panel Discussion “Macroeconomic Outlook & Forecast for Ukraine”. Experts and business representatives discussed the key indicators of the macroeconomic situation in Ukraine, inflation forecasts and foreign currency exchange indexes dynamics, the strategy of the NBU/IMF monetary policy for Ukraine and its impact on the real sector of the economy, investment trends and sentiments in Ukraine.
Experts agreed that the worst of the economic situation in Ukraine is over, but it is not worth expecting rapid growth in the near future. “I would describe the state of Ukrainian economy as scratching the bottom upwards. The worst of the economic situation was overcome in March-April. Since then our economy has been slightly improving. Our analysis shows that this recovery will continue though it will be pretty marginal. Next year economic growth will reach 3% at most”, said Dmitry Sologub, deputy governor of the National Bank of Ukraine (Macroeconomic stability).
Oleksiy Blinov, chief economist at Alfa-Bank Ukraine made a similar forecast. “The forecast for real GDP growth for next year is 2.5%. The first half of next year will be definitely just growing over the deepest decline point we had half a year ago. In the second half of 2016, we expect slow growth and hope for a boost only in 2017. I would like to stress that growth by 2-3% is forecast not only by us, but by the government and IFIs, is virtually no growth versus the very low baseline of 2015. In particular, real disposable household income, as well as private consumption, is likely to continue to fall in 2016”, he stressed. According to him, the key factor behind modest real GDP growth in 2016 should be reloading of industrial capacities, which have managed to live through the crisis and war. But the pace and scale of reforms so far does not seem to bring some clear macroeconomic effect in 2016.
The state budget and inflation were also among the key topics of discussion. According to Jerome Vacher, the International Monetary Fund’s Resident Representative in Ukraine, “the state budget for 2016 discussion will be difficult due to a loss of temporary revenues and increased expenditures leaving little room within the deficit targets. In parallel, the NBU will need to continue its increased focus on price stability”.
The NBU representative said it is determined to substantially change the monetary policy framework in Ukraine, increasing the role of the discount rate. This is because the NBU’s ultimate goal is a completely new monetary policy setup, which will change the focus of the Central Bank from the exchange rate to inflation. The stable moderate inflation will be the main goal of the NBU’s activities.
Business and international organizations representatives agreed that the pace of reforms is not satisfactory in all areas. Among key positive developments Jerome Vacher focuses on the tentative stabilization on macro level, fiscal stabilization — strengthening that started in the banking sector, stabilization of the level of UAH deposits, and stabilization on the FX market. “But there are areas we would like to see more progress, first of all anti-corruption. Overall, the progress in reforms has not been translated yet into apparent gains for the population. The recovery in income and economic conditions will take some time but the population needs to see some changes happening now — not only tackling corruption in day-to-day life, but need to see some systematic progress in the revamp of the prosecution and court system”, Mr. Vacher stated.
Nicholas Burge, head of Trade and Economic Section, Delegation of the European Union to Ukraine, focused on international trade issues. “DCFTA will be coming into force on 1 January, and it will have positive benefits both for parties involved and neighboring countries as well, this is a basis of trade liberalization in whole of the world.” The expert also stressed the importance of reform of the judiciary in Ukraine: “DCFTA reforms will be much less effective unless some fundamental changes is made — top issue is justice — this system is not reformed, it is still not working on a fair, non-corrupted basis. Likewise, the key sectors of public administration need to be reformed, particularly the state fiscal service”.
In the context of a possible Russian embargo on Ukrainian exports it should be noted, according to Mr. Burge, that “export from Ukraine to Russia now represents about 11% of all Ukraine’s exports, in the agro sector — only 2-3%. If the embargo is introduced, there will be significant effect on some businesses in certain sectors, but it will be nowhere as great threat as it was a couple years ago. Of course, we have been encouraging Russia not to take this action, which would be against WTO rules”.
