Page 5 - UKRRptJan22

1.0 Executive summary
The Ukraine economy bounced back from the coronacrisis in 2021 and was expected to end the year with 3% growth. That is actually a disappointing result as earlier growth was expected to end the year at closer to 4%, but Ukraine’s on going problems dragged the recovery down.
Like everywhere else Ukraine has been suffering from surging inflation which rose to over 10% in 2021 as the inflation expectations of the population became unanchored. That is despite the National Bank of Ukraine (NBU) being amongst the first central banks in the world to start tightening and then aggressively raising rates throughout the year: March (50bp), April (100bp), flat in June, July (100bp), September (50bp), December (50bp). By the end of the year the policy seemed to be working as inflation came off its peak in November although remains elevated.
The economy remains battered by multiple problems. Ukraine struggled to secure any significant supplies of the coronavirus (COVID-19) vaccines in the first half of the year and the population remains reluctant to take the shot which has lead to multiple waves of infections. Going forward the low level of vaccination and the appearance of multiple varients of the virus remains the main danger to growth in 2022.
The country was also hit by an energy crisis as gas prices soared and Europe was gripped by shortages. Since Ukraine has not imported Russian gas for more than four years it relies on re-imports from its EU neighbours to the west, but that connection imported the soaring gas prices to the country and supplies became thin.
At the same time surging demand for power and Ukraine’s reliance on the import of Russian coal to fire its power stations (Ukraine has lost control of its own supplies of coal which are mostly located in the Donbas) lead to shortages at the state controlled power stations. Some of these power stations were forced to shut down but while almost in crisis at the time of writing the lights and heating were still on.
The upshot of the shortages is that for a second year Ukraine will be highly dependent on the import of power from Belarus’ new Ostrovets (aka Astravets) nuclear power station, despite pledging to ban power imports from that country.
However, some sectors did well in 2021. Ukraine brought in a bumper record-breaking harvest at the same time as Russia, its main competitor, had a poor harvest. Grain has become one of the country’s biggest export earners.
The metallurgical sector also had a good year as iron prices rose to a nine-year high.
And retail and construction have also both had a fillip on the back of rising incomes. Ukrainian incomes have fast been closing the gap with those in Russia. Real wages were up 8% in November to record level of $525 per month, but still behind the Russian average of around $750.
5 UKRAINE Country Report January 2022 www.intellinews.com