Page 4 - UKRRptJune18

1.0 Executive summary
Ukraine’s economy is recovering and put in 3%-plus growth in the first quarter -- its best result since the economic collapse. But the economy has not built up the momentum it should have in a post-crash bounce-back and remains very vulnerable to external shocks.
Moreover, in the next few years it remains vulnerable to a lack of funding to meet its external obligations following the de facto suspension of the international donors programme, which has been suspended due to the lack of progress in passing key reforms, including setting up an anti-corruption court, and backtracking on earlier commitments, like refusing to impose domestic gas tariff hikes.
The current IMF programme comes to an end in 2019 and most commentators in Kyiv are confident that a new compromise will be found in a short term to release another $1bn-$1.5bn tranche this year and set up a new programme next year, but talks are ongoing.
Ukraine faces its final chance to regain the confidence of the IMF and restart lending under the current program. If Ukraine squanders this opportunity, it will have to muddle through to end-2019 without any material support from IFIs.
Signs in recent in May that parliament is preparing to vote on a version of the law on an anti-corruption court that would be acceptable to the IMF offers real hope for a favorable outcome.
The return of Ukraine’s largest lender would help maintain economic stability, safeguard the FX market from major shocks, and bring Ukraine back to the investor spotlight following the March 2019 presidential elections.
Full-year economic growth to exceed 3% for the 1st time since 2011
Economic growth surprised to the upside in the 1Q – GDP grew 3.1% y/y and 0.9% q/q, supported by strong domestic demand.
Growth in retail trade remains above 7% on the back of continued increases in salaries. Growth in other key sectors, including industry, remains feeble, but it should pick up starting in the 2Q against a depressed base.
Private consumption will remain the key growth driver, also supported by investments. However, the contribution of net exports will remain negative, as in previous years.
SP Advisors maintain its full-year 2018 GDP growth forecast at 3.1%. With risks currently to the upside, in our view, 2018 will be the first year since 2011 that Ukraine will deliver at least 3% annual growth.
CPI to remain on a downward trend and enter single digits in summer
High inflation has been a problem and lead to the National Bank of Ukraine to several rate hikes, which works against boosting growth. The pace of growth in consumer prices has been decelerating gradually since the start of 2018, but
4 UKRAINE Country Report June 2018 www.intellinews.com