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Ukraine’s economic outlook positive
March 7, 2007, Kyiv Post
Despite increasing prices on natural gas, relatively high inflation and a current account deficit, Ukraine demonstrated “decent” economic growth in 2006, the global rating agency Moody’s said in its annual report on the country.
The positive assessment by Moody’s, according to analysts, could lead to an upgrade in Ukraine’s sovereign rating, which last occurred in November 2003.
In its annual report on 2006, Moody’s assigned a positive outlook to the country’s B1 rating, due to favorable world steel prices and high foreign currency reserves.
Ukraine’s GDP is largely fueled by its vast export-oriented steel industry and mounting domestic consumption.
Moody’s Investors Service said in its report that several years of Ukrainian governments’ discreet fiscal policies, previous debt restructuring and continued foreign investment inflows have raised foreign currency reserves.
Higher revenues from steel exports have also helped liquidity ratios, Moody’s said. Foreign currency reserves at Ukraine’s central bank have swelled from about $2 billion in 2001 to more than $22 billion this year thanks to strong exports, Ukraine’s principle sources of hard currency.
The country does face some challenges, however. Ukraine’s current account deficit was $1.6 billion, or 1.5 percent of GDP in 2006, the National Bank reported. In 2005, the country had a current account surplus of $2.5 billion, or 3.1 percent of GDP. Inflation has remained relatively high. The State Statistics Committee said that inflation in 2006 was 11.6 percent compared with 10.3 percent in 2005. The price of gas received from Russia was almost doubled in 2006, only to go up by more than a third at the beginning of this year.
But the Moody’s report noted relative political stability as contributing to Ukraine’s overall improved economic outlook.
According to Moody’s, Ukraine’s various macroeconomic indicators and debt ratios remain far superior to its peers in the country’s current rating category, resulting in a better credit rating.
“Less political uncertainty, improved growth prospects, and reasonable liquidity and debt payments combine to make the rating outlook positive,” said Jonathan Schiffer, author of the Moody’s annual report for Ukraine.
“Although higher gas import prices have increased inflation and the current account deficit, Ukrainian industry seems to have absorbed them without losing its competitiveness,” he added.
However, Moody’s forecasts that economic growth in 2007 will be a little less robust than in 2006 due to the less favorable global metals environment that became one of the main economic stimuli last year.
“The recent growth has been driven by higher global prices for metallurgy and metal working,” Schiffer said.
Alexander Klymchuk, an analyst at Kyiv investment bank Concorde Capital, said that Moody’s positive outlook could be the first step in bumping Ukraine up to a higher sovereign rating.
“It’s good they gave such a positive report. They used to be more conservative. In the future, it can influence a change in Ukraine’s rating,” he said.
In a recent report, Kyiv-based investment bank Dragon Capital predicted that positive economic trends will continue this year. In January, real GDP increased by 9.3 percent year-on-year compared to a meager rise of 0.9 percent in 2006.
Industrial output rose by 16 percent compared to 2.2 percent a year ago.
Increasing prices on fuel imports, including natural gas and oil from Russia, have forced industry to cut down on wasteful consumption and improve energy efficiency, the report says.
Industry growth was also supported by developments unrelated to energy prices.
Machine-building contributed the most to growth in industrial output last month, increasing 36 percent year-on-year. It is currently unclear whether the upsurge in this order-book dependent sector was a one-off boost or the beginning of a stable trend, Dragon Capital’s research team said. But taking into account that around 60 percent of industrial output is exported, some positive trade balance implications will apparently stem from this growth in the nearest future, they added.
For additional information, please contact:
Romana Tomasova
Director of Corporate Communications
Central European Media Enterprises
+44 (0)20 7430 5357
romana.tomasova@cme-net.com
