Comments of the
Ministry of Economic Affairs of Ukraine,
Bohdan Danylyshyn as to
basic macro-indices of economic and social development for 2009
This year the economy of Ukraine was developing under the influence of complex and controversial world processes.
Up to July, 2008, general development of the economy had been characterized by positive trends, formed in the environment of favorable foreign demand-and-supply situation. However, as a result of foreign economic situation degradation, because of world’s financial crisis expansion, the trends of Ukraine’s economy development had changed dramatically.
At present, the best part of industrial sectors, affected by
“new” adverse conditions of business environment, are marked by negative trend of their development.
For example, in September, 2008, as against the corresponding period, 2007, the output of metallurgical industry had grown less by 17%, in October – by 35.6%, and in November – by 48.8%, while the output of chemical and petrochemical industry had grown less
by 2.1,
19.2 and 35.2
% correspondingly. In general, industrial output had decreased in September by 4.5%, in October – by 19.8% and in November – by 28.6%.
Consequently, according to the results of
11 months, 2008, the cumulative index of industrial output had grown less by
0.7%, while positive growth of GDP had been decelerated down to
3.6%, as against 5.8% in January to October.
Today, having put in perspective the reasons for such a dramatic change in development trends, it should be noted that those reasons had been caused not only by drop in demand in foreign markets, although the degradation of foreign economic situation had catalyzed the development of
adverse trends.
In addition, cut-back in production and drop in domestic demand were caused by unsettled problems, existing in banking domain, and fluctuating situation in foreign currency market.
Those shock changes are nothing more than a “rough landing” in the environment of world’s
recession expansion. In fact,
during the last three months, we were under the influence of adjustment, which might be observed during much longer period of time, i.e., gradual decrease in production output.
Following
the results of 2008, the output of metallurgical industry is expected to grow
less by 10%, while that of chemical industry is to decrease by 3%. However, it is expected, as well, that the volume of production output in mechanical engineering will grow by 12.5%.
A cut-back in production will result in deceleration of development in related sectors of economy – trade and transport: the index of their output
growth will not exceed 0.7 and 8%, correspondingly.
As for pricing processes, in November, the prices, fixed by industrial goods manufacturers, had grown less by 6.5%, including by:
13.7% - in metallurgical industry; 16% - in ore mining and smelting industry; 16.5% - in coke and petroleum derivatives manufacturing industry; 10.3 % – in
chemical industry. Such a landslide of prices speaks for appropriate response
of Ukraine’s
market to the drop in both prices and demand, observed in the world markets. In general, following the results of
2008, the index of prices, fixed by industrial goods
manufacturers, will make something like 121.1%.
Yet another essential factor was depreciation of national currency, which would have its effect on the prices of non-food products imported. In addition, further positive development of prices and tariffs for the services under administrative control (public and transportation services) will contribute to general growth, as well. Following the results of 2008, it is expected that the Consumer Price
Index will make something like 121.9%.
It is anticipated that in 2009 the GDP will grow by
0.4%.
That forecast is made on the assumption that economic advancement will continue, owing to implementation of a number
of anti-recessionary arrangements, inasmuch
as the other countries of the world had formulated their macroeconomic
forecasts and developed their budgets on the basis of the same considerations.
Information provided by trade and economic missions of CIS and some European countries speaks for the fact that overall majority of the budgets for
2009 have deficit, amounting to
0.4 to 3.4% of GDP.
In other words,
the Governments develop their budgets with due consideration of a set of arrangements,
focused on mitigation of recessionary effect on their economies.
Moreover, it is expected that the prices and demand in world’s market of metal will start to grow as early as in the end the
1st half-year,
2009.
Among
the other assumptions, on the basis of which the budget had been developed, are:
Foreign:
- gradual adjustment of natural gas prices according to international
transit-adjusted levels;
- fall of annual average price of oil down to US$
60 to 70 per 1 barrel, as against US$ 98, expected
on an average in 2008;
- deceleration
of the world’s economy development down to 2.1%, as against 3.7%, expected in
2008.
Domestic:
- stabilization of foreign currency market and restoration of banks credibility;
- increase in minimum wages with due consideration of inflation index;
- concentration of development expenditures, first of all, on financing of the projects on public utilities modernization, development of infrastructure (both transport and municipal), organization and holding of the final part of European Football Championship, EURO-2012;
- increase in threshold level of natural gas prices (tariffs) for all groups of consumers;
- further harmonization of tax laws with EU standards.
So, resumption of development depends on:
- timeframe,
within which the positive development of prices and demand in the world markets
will be restored;
- normalization of money circulation and re-orientation of banking system towards strategic projects implementation;
- efficiency of anti-recessionary policy implementation, which is to create conditions favorable for domestic market.
It is expected that crisis will be overcome and the economy will continue its positive development as early as in the
beginning of 2nd half-year, 2009. Owing to better world’s economic situation and removal of financial thrombs, the development of domestic export-oriented industries will be accelerated. By that,
the financial resources will return to all related industries. Furthermore, the processes of increase in production output
of extractive industries will be substituted with those related to
transportation and wholesale trade.
The losses, incurred by the exporters, because of unfavorable foreign environment, observed in 1st half-year,
2008, as well as increase in production investment volume, will be compensated by national currency depreciation.
Restoration of export activities in the end of
1st – beginning of 2nd half-year,
2009, will grant an opportunity to have negligible reduction of exports volume (down by 3.8%). At the same time, in 2009, as against 2008, the volume of metal and chemical products exported will grow less because of price effect and drop in demand in the world markets. However, abovementioned reduction will be compensated by further increase in volume of exports of agricultural products (it is expected that in 2009 gross grain and grain legumes yield will make
45 million tons)
and goods with high value added (such as the products of mechanical engineering industry, owing to
continuous positive development of exports to CIS countries and other countries
of the world).
It is anticipated, as well, that Ukraine’s WTO membership will be ministerial to reduction of expenses, caused by antidumping probes, and weaken the tariff barriers, applied to domestic
goods exported to the foreign markets.
Notwithstanding the reduction of cost volume of exports, the contribution of foreign trade will be positive for the first time in recent four years, owing to substantial
decrease in volume of imports (by 9.5%). Restrictions, applied to consumer lending, alongside with national currency
depreciation, will result in reduction of demand for imports. Notwithstanding further advance in natural gas prices, the latter factor, as well as relevant diminution of intermediate demand of manufacturers and decrease in volume of raw materials imported, caused by drop in production, will result in reduction of
imports volume.
As a result, negative balance of trade in goods and services will grow less down to US$
7.1 billion, as against US$ 13.3 billion,
expected this year.
It is anticipated that
2009 will be marked by low investment activity (according to the results of
2008 the gross volume of fixed assets, being a
part of GDP, will grow less by 0.2 p.p., while actual index of decrease will
make 1.3%). However, it will be supported by a number of arrangements, focused on financial
system hardening, liquidity support and restoration of bank system credibility. That will become a background for further effectivization of the procedure of temporary surplus funds redistribution towards financing of investment projects and projects on expansion and intensification of production activities, as well as promote economy unshadowing and stabilization.
Yet another high-capacity source of investment will be implementation of projects under the auspices of the World Bank, European Bank
for Reconstruction and Development and European Investment Bank. It is expected that realization of projects on power engineering, transport system and public utilities development will be intensified.
Organization of the final part of European Football Championship, EURO-2012, to be held in Ukraine, will be a kind of an insurance policy that is to promote investment activities and attraction of foreign capital. For example, it is expected that a number of infrastructural projects on construction and reconstruction of stadiums, sports complexes, airports and railroads will be implemented.
In the environment of financial turmoil, the Government will concentrate the expenditures on construction of infrastructural facilities and housing, in order to promote the expansion of domestic market through re-orientation of export-oriented industries and sectors of economy related to those industries (metallurgical engineering, extraction of subsoil assets, except for fuel
and energy resources, wholesale trade, cargo transportation and others).
As for the households’ consumer demand and final consumer expenditures of state managed sector, the vector of their development will be changed, as well.
In the environment of social standards and average wages improvement according to forecasted inflation level only, actual purchasing power of the households will be somewhat decreased. As a result, the share of final consumer expenditures in GDP will grow less by
0.2 p.p., while actually – by 0.3%.
Decrease in consumption of state-managed sector will be more substantial
– by 5.7%.
It should be mentioned that operation of domestic economy will be an initial stage of state managed sector reorganization. Against the background of budget costs austerity, non-efficient
consumer expenses will be terminated. Inter alia, it
is anticipated that the volume of management costs will be reduced by 20%. As a result, the share of final consumer expenditures in state managed sector will be reduced by 0.6 p.p.
Provided that gross domestic demand grows less by 2.7%, it is expected
that inflationary development will be decelerated, as well. Index of prices, fixed by manufacturers, will make 112% (December to December),
while Consumer Price Index will make 109.5%. Apart from the factor mentioned above,
the prices, fixed by manufacturers, will develop against the background of reduction of prices for certain export-oriented types of goods
(such as ferrous metals and chemical products) and further advance in price of natural
gas.
It
should be stressed that none of CIS countries has forecasted a drop in
production in 2009. Moreover, positive assumptions are heard also from Poland, Czech Republic, Romania, Slovakia, Lithuania and Hungary.
Those optimistic forecasts are based on the assumptions of positive effect of anti-recessionary governmental programmes on their economies development.
