Gross domestic production in Ukraine, one of the world’s most recession-battered economies, contracted by 20 per cent in the first quarter of 2009, according to official government figures released on June 30.

 
After months of delay, the figures were released by the government of Yulia Tymoshenko, prime minister, during a visit to Kiev by an International Monetary Fund mission. The Fund is mulling whether to grant Ukraine a third tranche from a $16.4bn lifeline granted last fall.
 
European leaders and bankers are keeping a close eye on Ukraine, whose economy is deep in recession and finances are stretched to the limit. With a 40 per cent stake on the Ukrainian market, European banks fear troubles in the country’s shaky bank sector could spill over. Europe also worries Kiev’s inability to pay for Russian natural gas imports could spark another energy war. Its pipeline system feeds Europe with 80 per cent of Russian natural gas imports, but Ukraine has in recent months struggled to pay Gazprom. Russian leaders have pressured Brussels to help broker a loan of $2bn-5bn for Ukraine, warning that supplies to Europe could be cut off as during a January dispute if Kiev fails to pay.
 
Ukraine is hoping for swift IMF disbursement of a third tranche, more than $3bn, to keep its financial system stable, cover a widening budget deficit and help pay for gas imports. Talks over additional multibillion-dollar loans to help Kiev pay for gas are also underway with the IMF and other western lenders, including the European Bank for Reconstruction and Development and the World Bank.
But with GDP in freefall and political rivalries and populism high ahead of a January 2010 presidential contest, Kiev’s lenders are seen as extra cautious. Viktor Yushchenko, president, has accused Ms Tymoshenko, his bitter rival, of suppressing GDP numbers to conceal the dire economic situation ahead of the presidential election in which both erstwhile allies are to clash with their Orange Revolution foe, Victor Yanukovich.
 
The GDP numbers appear less dramatic than estimates of a 25-30 per cent GDP drop (January-February) released by Mr Yushchenko in April. But “Ukraine, as expected, suffered the worst economic contraction in the Central & Eastern Europe region in the first quarter of 2009”, Austria’s Erste Group said in a July 1 report. “The figure is slightly better than officials and the market expected, however it is slightly worse than our base expectation of 18 per cent decline,” Erste said, forecasting that Ukraine’s annual GDP could contract by 12 per cent.
 
A recovery in steel, Ukraine’s main export, has been felt in recent months, but production levels are still only 60 per cent of last year’s levels. At least 1m of 46m Ukrainians are estimated to be out of work, but citizens have remained calm and studies show consumer confidence to be on the rebound.
 
Much concern hovers over the stability of Ukraine’s banks sector. It has stabilised a bit in recent months after last autumn’s run on deposits. The hryvnia lost about 40 per cent of its value last fall, but has stabilised at about 7.5 to the US dollar in recent months.
 
The government last month approved bailouts for three large banks, but Kiev’s credit market remains in a deep freeze. Many banks and companies are struggling to restructure billions of dollars worth of foreign debt that matures this year.

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