A. conceded to the laborers by doubling the minimum

A.    Gross Domestic Product – GDP

The GDP growth in Ukraine
has been positive but slow (Appendix –
Picture 3 &4). Ukraine’s GDP grew modestly by 2.3% in 2016 after facing
steep downward trends in previous years. Due to bumper agriculture output, anunusual
growth of 4.8% was seen in fourth quarter of 2016. Henceforth, the GDP is
expanding at an average rate of 2.3%. Recently the growth rate for the third
quarterof 2017 has been registered as 2.1%.Less heraldic of the recovery is the
actual growth rate, now expected to close the year at 1.8%.

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These figures must be placed in perspective:

The economy is growing
from a lower base as its present size is slightlylarger than half of the 2012
pre-crisis figure, and the GDP per capita is barely 55% of the equivalent
figure in 2012.However, the deficit does not appear to be feeding into the
national currency (UAH) which has roughly remained steady for two years now. It
is important to remember that since the official peg to the dollar (then at 8.2
UAH: 1 USD) was dropped in 2014, the UAH remains stubbornly close to the
psychologically discomfiting 1:30 level.

B.    Foreign Currency Reserves

The clearest sign of the
recovery to date has been the upward
trend in foreign currencyreserves (Appendix
– Picture 5). AfterUkraine witnessed a near collapse in 2014, dropping
close to considerable level of $6 billion at one point, this rise is
significantly important. The reserves are currently at $19 billion which is over
70% of the IMF composite metric. Though it is still substantiallylower than the
pre-crisis peak of $32 billion (in 2012), the consistent upward trendcannotbe ignored.

On the other hand, this
recovery in reserves has followed with a growth in the imports bill (the gas
import volume has gone up by 40%) as well as in the wage bill, resulting into a
perniciously projected twin deficit – 4% in fiscal terms and 3.5% in current
account terms. Policy conduct is instrumental in these developments, so the
Ukrainian government conceded to the laborers by doubling the minimum wages,
and also to the capital by loosening capital flight controls & restoring
most profit repatriation rights. Furthermore, these reserves are put under additional
pressure from widening of the current account deficit that is influenced by
contraction in steel exports and growth in energy demands.

 

 

 

C.     Unemployment Rate

Labor market for Ukraine
remained weak in this fiscal year too. First three quarters of 2017reported an
average unemployment rate of 9.9%. It is predicted to go down to 8.8% in Q3 of
2017. But still on the global scale, it is at a higher level(Appendix – Picture 6).

The major factor contributing to this unemployment rate is,the steady
decline in domestic production that resulted in reduced number of jobs in the market.
To make matters worse, outdated education policies and sudden transition to technical
automation processes are fueling into this rate. Lastly, disengaged trade ties
with the rebel-held Donbas region is further addingto the pressure on steel exports
and subsequently on manufacturing capacities.

D.    Inflation & Interest
Rates

Necessarydevaluation of hryvnia and stable exchange rate
has helped to bring inflation under some control. The inflation rate which was
at around 40% in the starting of 2016 is now at less than 15% (Appendix – Picture 7).The National Bank
of Ukraine (NBU) is predicting inflation for 2018 & 2019 at6% and 5% respectively.
The steady increase in average monthly wages, which is at 36% in Q3 of 2017 (Appendix – Picture 8), has played a significant
role in curbing this inflation. The food inflation on the other hand is still on
steadyrise. Though It has come down heavily from 40% rate of 2016, but since the
start of this year it has been on a steady increase.As projected, Q3 of 2017
will report around 18% inflation in food sector.Due to this inflation pressure
the NBU decided to raise the key policy rate from 12.50% to 13.50%(Appendix – Picture 9).The interest
rates are being closely monitored as the trajectory of inflation will decide
its easing cycle. To take control of the inflation situation, the bank
mightdecide to pause its loosening cycle fora while.