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Economic developments in Ukraine in 2006

This report analyzes the economic developments and major risks in Ukraine in 2006, including political, legislative, demographic, and economic factors. It examines the potential impact of the PR-OU coalition and ORANGE coalition on the economy, as well as the legal environment and economic outlook. The report also discusses the impact of the gas agreement on Ukraine's industry and gas balance.

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Economic developments in Ukraine in 2006

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  1. Economic developments in Ukraine in 2006 D. Shemetilo, West LB

  2. Major risks for economy • Political • Legislative • Demographic • Economic

  3. PR-OU coalition (50% prob) • Building a state not a nation • Targeting EU • Consolidation of country by resolving the problem of Russian language and NATO • Normalisation of relations with Russia • Fiscal discipline • Recovery of growth (5-6%) and lower inflation (7-8%)

  4. “ORANGE” coalition (20% prob) • Building a nation not a state • Targeting NATO • Growing tension in society • Deterioration of relations with Russia • Compensation of slow economic growth through social benefits • High low growth (1-2%) and high inflation (12-13%)

  5. Legal environment • Development and harmonisation of the legislation using the EU as a nominal anchor • Corporate legislation • Legal enforcement • Corruption

  6. Economic Outlook • Growth in services and domestic consumption • Lower export growth • Increase in FDI • Three years for structural reforms

  7. Economic Outlook • 2006 GDP growth 2-3% • 2006 CPI 10% • Average UAH/USD 5.05-5.09 • 2006 FDI USD4-5bn

  8. Impact of the gas agreement • Positive for Ukraine • Long term positive for industries • Ukraine receives gas at USD95/thm3 • Russia gains control over Ukrainian gas re-export and domestic gas distribution

  9. Structure of Ukraine’s Industry Source: Ukraine’s MoE 2004

  10. Ukraine’s gas balance Source: WestLB

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