2008

RISKS OF OVERHEATING

Problems of the world’s capital markets made many economists and business analysts to argue that it can hurt Ukrainian economy. We made some analysis to discover real current trends in the economy. First, a statement based on Ukrainian negative balance of trade of goods is not a correct indicator of the apparent liquidity crisis since it does not take into account the other foreign economic activities. If to consider trade of services, investments and cash transfers, one may reckon Ukraine’s overall foreign activity balance as positive, from $3 bn to $10 bn (depending on methods of estimations). There are also no significant problems with relative decrease of investment activities expected in 2008 since average investment growth will be high and inflows of FDI will increase, often because growing activity in merger and acquisition (M&A) deals. Moreover, investments are provided by different types of businesses, what makes economy more stable. One should not estimate any decreases in Ukrainian capital market as serious problem for the economy because of its small turnover. However there is some overheating in the banking sector, where corporate loans are much higher than corporate deposits. Current undertakings of the National Bank to stabilise banking long-term loan activities will hardly be effective. But anyway if to consider capital structure of the bank sector, one may see that most of the banking system may rely upon strong reserves which help avoid the liquidity crisis in the banking sector. Inflation remains real problem for Ukrainian economy, but it should be considered as payment for the economy growth, quite common for many emerging economies. So, final conclusion is that one should not expect economic crisis in Ukraine in 2008. However, investment activities will not exceed those of 2007, economic growth will slow down, while inflation will grow.