Ukraine's economy grew 4.7% on the year in January-May 2005, a half of the pace of its expansion last year. Key reasons for slower growth were a slowdown in industrial sector and dramatically lower growth in fixed investments: 4.5% in the first quarter against 52.1% over the same period in 2004, New Europe reported.

The review of previous allegedly corrupt privatization deals, one of the core election promises of the new government, remains unsettled. The lack of a clear and agreed indication of the scale and principles of this re-privatization has put a damper on both domestic and foreign investment in Ukraine.

A 6.7 percent decline in construction over January-May 2005 and a noticeable reduction in the number of press releases about business developments posted by major companies indicate that investment activity has abated.

The government needs to identify the terms and conditions underlying this re privatization process as soon as possible to enable investment to move into high gear and, thus, to ensure rapid and sustainable economic growth for the next few years.

Overall, investments will grow faster in 2006 than in 2005. After the March 2006 general election, the government will shift the key emphasis in its economic policy from improving the current personal financial standing of Ukrainians to implementing large-scale, long-term reforms. But the majority of these reforms will likely only be implemented starting in 2007.

The key growth driver will be livelier investment - $2.5 milliard in 2007 as reforms will improve business environment and Ukraine will probably join the World Trade Organization by that time. In general, the year of 2007 would be the year when structural economic reforms kick in.  


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