Along with this, this year overall inflation is expected at low level of 3.8%, though almost zero inflation of latest months may make experts to revise inflation forecast downwards. In 2014 the inflation is expected at the level of 5.5%. According to basic principles of monetary policy of the National Bank for this year, annual rate of inflation in 2013-14 must balance within 4-6%, and starting from 2015 - within 3-5%.
So, what are the factors enabling to expect stability this year and growth in 2014? Analysts recall buoyancy of economy in the U.S.: in 2012 GDP grew by 2.8%, this year it is expected at the level of 1.7-1.8% and in 2014 - 3%. It enabled the White House to launch QE-3 program of unlimited purchases of mortgage-backed securities. Such approach sustains economic performance not only in US, but in the whole world, and Ukraine may benefit from its recovery.
Though QE-3 program is of open-ended nature, there was an announcement that the bond buying program could wrap up by mid-2014. Some logically deduce that wrapping up may restrain further recovery of global economy, including Ukrainian one, but economist Ruslan Pavlenko assures otherwise. One of the effects of QE includes reduction of American business income due to prices rise for raw materials. Thus, suspending the program may increase incomes and probable lowering of prices for raw materials may improve Ukrainian economy in turn: oil price drop should lead to decrease of prices for gas (as both are connected on the world market), which is beneficial for metallurgy chemical industry (currently, gas share in the prime cost of products exceeds 50% in both industries).
Moreover, stock markets are most probably to drop and it will force the capital to search for more profitable markets, and emerging markets, like Ukraine, are one of them. As a result, in 2014 international investors may withdraw their means from raw material and stock market sectors and send them to the market of debt capital, creating the demand for debt securities, including Ukrainian ones. In turn, it will help Kyiv to pay off foreign debts and keep some resources for economy recovery projects.
Positive trend can be observed not only in the U.S. Thus, GDP growth have been registered in such European developing countries as Poland, Czech Republic and Hungary. Active dynamics of agricultural sector and construction has resulted into 0.1% GDP growth. Long lasting recession has finally ended in Czech Republic, brining 0.7% growth for April-June period. As for Poland, it is the only EU country that has not suffered recession during the global financial crisis, and its quarterly GDP growth speeds up. The overall GDP of the euro zone grew by 0.3% in the second quarter.
The International Monetary Fund is preparing to hold annual consultations with Ukraine under Article IV of the IMF's Articles of Agreement (obligations regarding exchange arrangements), according to William Murray, a deputy spokesman for the IMF External Relations Department. The mission will analyze this autumn the macroeconomic situation in Ukraine. In early April 2013, the IMF mission completed in Kyiv the next round of discussions with the government, promising to continue "in the coming weeks" the negotiations on a new loan, setting unpopular reforms in the economy as the necessary condition. "But there have been no in-depth discussions of such a program at the policy level since April," Murray said.
In this respect, director general of the investment-banking company European Capital Management Vadym Brailovski says the IMF is interested in resuming "stand-by" cooperation with Ukraine as much as Ukraine itself. The expert believes that despite complicated negotiations, in November the Cabinet has a chance to agree on $15.5 billion loan. "The Cabinet has improved key issues required by the Fund. Thus, budget deficit of 2013 will make about 3%, which is permitted by the agreement, and hryvnia's exchange rate may become more flexible.
Considering the change of mission manager, IMF is also interested in positive results, the analyst continues. Economists also believe that the Fund should revise the conditions of new agreement. "Our position must be taken into account - President Yanukovych said this spring, when refused to increase gas prices for population by 40% to get the loan. Such position was justified, as there are sad examples of negative consequences. In Bulgaria, the authorities had to face nationwide riot after similar prices rise," Brailovski added. Moreover, many specialists agree that in 2013 national economy can do without IMF loans.
In this respect, Ukrainian First Deputy Prime Minister Serhiy Arbuzov declared recently that negotiations with IMF were ongoing, and a loan agreement for about $15 billion could be signed this autumn. Resuming of financing by IMF will enable not only to reduce pressure on foreign balance but also to attract more outward investments.
With certain optimism
Analyzing trends and prospects of Ukrainian economy, we should not forget about growing importance of the agro-industrial complex. According to agriculture minister Mykola Prysiazhniuk, in 2012 the share of AIC in country's GDP made 11%. Though it is less than the share of the mining and metals sector (27-28%), the figures are promising. "We have developed a number of measures, some of which have already been implemented, including improvement of leasing programs, innovations in crop research and irrigation. Moreover, we will form primary zones for production of baby foods, construct and reconstruct stock breeding complexes, develop production of biofuel," the minister said.
However, such policy is not a know-how, Pavlenko specifies. He agrees with the opinion that the agro-industrial complex manages to harvest heavy yields thanks to smart policy of the government. Thus, in 2013 the total amount of harvested grain may reach 57 million tons, which is an absolute historical record. Export of grain may reach 30 million tons, which will bring the country to the top second or third place on cumulative grain supplies in 2013-2014 marketing year against the seventh place last MY. "In turn, it will enable to differentiate the structure of national economy. The agricultural sector now sustains the overall economic dynamics, compensating the drop in export of metal production," Pavlenko points out.
Moreover, the State program of economic development for 2013-2014 may play its role not only for the agricultural sector. The overall estimate of the program makes 382 billion hryvnias, including 195 billion from private investors. Among innovative mechanisms of the program there is a renewed scheme of granting sovereign guarantee with participation of banks. Banks will serve as a filter in the process of selection of investors, which can count on state support. In general, the document has five key priorities: improvement of economy competitiveness, improvement of investment climate, support of domestic producers, development of high-tech sectors, structural reforms and export pickup. The above mentioned measures are aimed at making 3% GDP growth possible in 2014.
As for economy contraction in the first half year, experts explain it by local fluctuation of external environment. "The country carries out various programs simultaneously, including optimization of transfer pricing, unshadowing, energy saving, crediting. Thus, NBU has reduced the basic discount rate from 7% to 6.5%, which is aimed at cheapening of borrowed reserves. Such measures prepare background for recovery of budget and economic processes," Pavlenko underlines.
In turn, it means that next year the economic tonus of the country may increase significantly and in accordance with analytical forecasts. Though it does not mean the problems will disappear, but at least there is a ground for positive expectations. Meantime, state bodies and business can and must use every effort to make this ground as favored as possible.
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