Page 4 - UKRRptJun20
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1.0 Executive summary
As one of the poorest countries in the region that is a very weak macroeconomic position Ukraine is amongst the most vulnerable to the series of external shocks delivered in the last two months.
Ukraine's economy shrank by 12% in April after 4.4% decrease in March
marking the potential bottom of pandemic crisis. Passenger transportation plummeted; industrial production, and trade and cargo transportation accelerated their decline, while agriculture remained resilient. Compared to Russia’s 28% nominal (202% real) contraction in April Ukraine seems t have done better than its bigger neighbour, but it had less far to fall and the lockdown was spread over two months, whereas all of Russia’s stop shock was concentrated in April alone.
The obvious blows have been the collapse of oil prices and the start of the coronavirus (COVID-19) pandemic, but not only. Ukraine doesn't produce oil, but the fall in prices affected Russia and despite the de facto war between the two countries their economies remain intertwined.
Late to arrive in Ukraine the government of president Volodymyr Zelenskiy government was forewarned of the dangers of the epidemic and quick to act. The number of infections has been held at an order of magnitude less than those in Russia despite Ukraine having about a third of the population of its northern neighbour. Ukraine’s public health system is weak and underfunded, but as the number of infections has been kept down the system has coped and the number of fatalities is happily relatively low.
Trade has been falling but Russia remains a top five-trade recipient of Ukraine’s exports so its economy feels the effects of a slowdown. While much is made of two million Ukrainians that work in EU countries, especially Poland, there are three million expat Ukrainians working in Russia that send money home so falling remittances will hurt the Ukrainian economy this year. Last year Ukrainians working overseas sent $15bn home, but this year the National Bank of Ukraine (NBU) is expecting that to fall to some $10bn, which will hurt the balance of payments and make the trade deficit more difficult to cover.
Gas prices have also tumbled, which is a plus for Ukraine, which is a net importer of gas, but that has also reduced transit prices of Russian gas to Gazprom’s western customers which is an important source of hard currency earnings.
Commodity prices have also been brought down by global pandemic, which hurts steel prices, another of Ukraine’s major exports. However, grain and food prices have remained up, but there is now a problem with supply chains which has hurt this business too.
Having said all that Ukraine’s economy has been fairing pretty well. There was a scary two week period in March where the NBU burnt through $2bn of its reserves as the public started panic buying dollars, but the regulator successfully calmed nerves and the buying spree quickly came to an end.
4 UKRAINE Country Report June 2020 www.intellinews.com
