Recession In 2013
BMI View: We believe that Ukraine has now entered recession and do not expect to see a recovery in 2013. We have downgraded our real GDP forecast to -0.5%, from a previous forecast of 1.0%, und erpinned by a weak export base and currency instability.
While Q412 readings have yet to be released, we believe the Ukrainian economy is now in recession , and expect the headline growth reading for 2012 to show that Ukraine grew by an estimated 0.1% in real GDP terms . Weak external demand for steel coupled with an overvalued currency in the first half of the year will cause net exports to drag on growth. With no gas deal from Russia, and IMF financing remaining frozen, the economy remains highly vulnerable to external conditions. While we see scope for improvement in the second half of the year due to a number of factors including the likelihood of a weaker currency, an improving regional growth outlook, and the possibility of an IMF deal, we expect Ukraine to spend at least the first half of the year in economic contraction. As such, we have downgraded our real GDP forecast for 2013 to -0.5% , from a previous forecast of 1.0% .
The weak condition of the domestic steel industry underpins our expectations for net exports to struggle in 2013. Slow growth in Europe an and Asian markets has driven a hefty slowdown in Ukraine ' s key steel export base. While the recent wave of Chinese stimulus has dri ven a slight recovery in Ukrainian steel prices, which lost around 15% over the course of 2012, we are not convinced that these dynamics will persevere beyond Q113. Furthermore, iron ore prices have risen rapidly since Q412, squeezing the margins of domestic steel producers. Coincident economic indicators are pointing towards sustained contraction , with industrial production shrinking by 7.6% in November.
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|Ukraine - Real GDP Growth & Industrial Production, % chg y-o-y|