2006

SMALL RECOVERY BEFORE BIG TROUBLES

First months of 2006 brought some recovery to Ukrainian economy. Main reason is recovery of investment activities during the second half of 2005. Also warming up consumer market, due to more election-linked social payments, helped recovery. There are evidences of revival of investment activities today: growth in construction, import of machinery and equipment, more foreign investments inflows, and strong link among capital investment in large industrial regions, increase of workload there and finally high industrial growth in such regions. Namely investment recovery is the most stabilising point for economy growth in long term, while large social payments are rather temporary growth factor. The last factor of recovery, export stability, did work in the second half of 2005 - and almost does not work now. The most serious troubles that Ukraine's economy faces in near future are higher prices for natural gas, domestic factors of increasing export costs (and production in whole), more competition of import with domestic production (including deficit of current accounts as one of results), perspectives of higher inflation, both for consumer and producer prices, outflows of capitals out of Ukraine, and risks of financial instability. Hence, there is very high probability for "not optimistic" scenario from Ministry of Economy, which suggests less than 2,8% growth of GDP and 3% for industrial output, slower, around 6% increase of exports (while imports may grow 2-3 times faster), more than 11% consumer inflation and around 17% producer inflation, and, perhaps, some financial instability. Economy recovery of late 2005 - early 2006 was indeed good, it helped avoid apparent economic crisis. But it was just tactical and one-time measure, but no systematic changes were made in economy by the new power. As a result, economic development in 2006 will be slow, investment breakthrough will not happen, consumer market will remain underdeveloped.