Ukrainian Economy Today and 2015 Forecasts

In this post I will present some insights about the Ukrainian economy from the latest macroeconomic research reports prepared by the Ukrainian investment banks and presented to general public.

Analysts from SP Advisors did a good job analyzing current situation in the Ukrainian economy and giving forecasts for 2015. However, their official UAH/USD exchange rate forecast is overly optimistic. They forecast on average 17.50 UAH/USD rate, while the National Bank of Ukraine already set a 27.76 UAH/USD rate as of March 2, 2015. Given current and forecast level of Ukraine’s foreign currency reserves, ongoing war and declining export volumes, we should expect further depreciation of the Ukrainian currency.

Other than that, I think SP Advisors report gives comprehensive understanding of the current macroeconomic situation in Ukraine and the summary of this report is shown below.

The Ukrainian economy has plunged amidst the war in the east and the hugely negative spillover effects. With the painful adjustment to new realities continuing, we don’t expect any material improvement in the coming months. On the other hand, the worst seems to have been fully flushed out of the dark; we now have clarity over what issues need to be addressed and how to address them. Real GDP is highly unlikely to recover before 4Q15 at the earliest, once the base effect vanishes in full. Ukraine will struggle to service its debt obligations in 2015. Although the funds committed by IFIs and foreign governments for 2015 are sufficient for Ukraine to repay sovereign external debt, more is needed to cover the C/A gap and maintain stability in the FX market. We estimate Ukraine will need to raise USD 21 bln in 2015; about USD 15 bln seem to already be secured. The budget will remain an issue – due to completely unrealistic revenue targets and masked expenditures, the actual fiscal gap may exceed 10% of GDP. Printing money seems to be the only source to cover a gap of that size.

Ukrainian key macro data and projections according to SP Advisors:

You may find full report here.

Analysts from ICU (Investment Capital Ukraine) were more pessimistic than SP Advisers. Here is their summary of current situation in the Ukrainian economy:

Because the Minsk 2 ceasefire agreement appears to have failed (or was just tactical maneuvering by both sides), we expect prolonged Kremlin aggression towards Ukraine in the economic, information and military spheres. Also, as the restructuring of Ukraine's economy by government authorities depends on these factors, we prudently expect the economic recession to lengthen and deepen. The recent disappointing statistical data on key sector economic growth in January 2015 reinforces our pessimism. As industrial production and cargo transportation have hit historical lows, resulting in a 6.7% contraction in real GDP in 2014, we project more a severe decrease of 7.6% in 2015, then flat growth in 2016. Only in 2017 do we expect a recovery of near 3% YoY.

Quick analysis of the Ukrainian key sectors (agriculture, retail trade, construction, transportation) is included in this report.

You may download full ICU report titled “Economic activity: Recession lengthens, deepens” here.

Concorde Capital and Dragon Capital, another investment companies based in Ukraine, do great research on the Ukrainian economy and companies, but you have to be their client in order to download those research reports. However, Concorde’s “Daily News” section is open to the public and it provides analysis of recent developments happened in Ukraine (Ukrainian companies’ daily news, as well as macroeconomic and political insights). If you check this out on a daily basis, you will definitely have understanding of what’s going on in Ukraine.