Will the eurozone market’s slump shake up Ukraine’s growth scenario?
Last week the european stocks slumped along with the euro. Default in Greece and the eurozone’s periphery is on the cards. a downturn in global trade can not only lead to the slippage of the recovery, but in a most adverse scenario, may put the world in a double-dip.
European Governments concerned with the current debt crisis and market volatility, are at the tipping point. The analysts strongly claim for fiscal consolidation and accommodative policies to offset market weakness and global economic gridlock as a result.
As Ukraine’s export-oriented economy is closely intertwined with the eurozone’s fiscal policies and market developments and taking into account that Ukraine’s market is not an isolated one, the echoes of the global market volatility can affect Ukraine.
Today we ask EBA Board members to highlight their views on the prospects and scenarios of global market turmoil and its reaction in Ukraine, to focus on the actions necessary to combat the monetary base slippage and slump of the national currency. May the turmoil in global financial markets threaten the economic recovery in the European Union and affect Ukraine’s business activities? Will the global economic turbulence shake Ukraine’s market confidence? Will this summer worldwide developments harm Ukraine’s monetary base?
Мauriziо PATAKNELLO, CEO, Nestle Ukraine and Moldova
I believe that the turmoil in the global financial market originated mainly from the overwhelming sovereign debts in most of the European countries will have an impact on Ukraine.
The fiscal tightening and cut spending measures adopted by the European Governments will reduce the demand for Ukrainian exported products to Europe. On the other hand, Ukraine has such a strong potential to be exploited, that increasing export will depend exclusively on its capability to improve productivity, hence competitiveness.
In addition, a stimulus to the Ukrainian economy could and should come from the development of the internal demand.
However this would require a more courageous policy to make Ukraine an attractive country for foreign investments. There is a need to enhance the country’s infrastructures and to improve the investment climate for attracting foreign companies to invest more in Ukraine.
Tomas FIALA, Chief Executive Officer, Dragon Capital, EBA President
The global slowdown will inevitably affect Ukraine’s trade-open and commodity based economy. The strongest impact will apparently be felt through the "commodity channel", namely demand and prices for steel, which accounts for 34% of Ukraine’s exports. On a positive note, recent consolidation of assets and vertical integration in key export-oriented sectors, including steel and chemicals, strengthened these sectors’ competitiveness and rendered them less exposed to external shocks.
The recent decline in oil prices will benefit Ukraine’s energy-dependent economy, yet its immediate effect on the trade balance will be modest. We expect a more significant positive effect from lower gas prices, but this will come with quite a delay since the existing quarterly gas price formula for Ukraine is tied to the average price of a basket of gasoil and diesel products for nine preceding months.
The country also remains exposed to tighter global credit conditions, but far less seriously than suggested by headline indicators of external vulnerability. We downgrade our GDP growth projections for Ukraine to 4.3% in 2011 and 4.0% in
2012, from 4.5% and 5.2%, respectively. We keep our other key forecasts virtually unchanged. We see few fiscal risks in our base case-scenario, as expected deceleration in budget revenue growth will likely be offset by a more conservative (but still generous) spending policy.
Krzysztof SIEDLECKI, Country Manager. Astellas Pharma Europe BV
Crisis ante portaslll What? Again? Whatever we call it - the new crisis or continuation of the old one; thing is rather obvious - rainy days are coming. Will the rain reach Ukraine? Will it be a warm Indian summer shower or a heavy rain flooding the country?
Ukraine is not an isolated island any more, Ukraine is a part of global financial and trade system with all its consequences. Light sneezing in China may effect pneumonia here, headache in New York - dizziness in Kiev, I don’t dare to predict what may be a local result of severe European dyspepsia. Ukraine still has a very weak own systems of defense, therefore must rely on external protective mechanisms and build alliances for the future. I see three roadmap points for Ukrainian authorities:
1. Ukraine is a country with the biggest potential in Eastern Europe. There are very strong bases to build healthy local economy. Necessary but missing capital must be attracted from external sources. Create the climate money will come. Being prosperous is the best defense against crisis
2. In the neighborhood there is (a little struggling now) one of the strongest world association commonly known as European Union. Free Trade Agreement is a perfect way to get closer to EU and utilize benefits it gives to partners.
3. Good and fair trade relations with Russia is a must to build prosperous future of Ukraine.
Trivial? Yeah.In 2008 Ukraine was really badly hit by crisis. Is now a danger of double-dip here? I don’t think so. Definitely a slow down but not towards red figures.
Working in pharmaceutical company, I ask myself a question haw badly this sector will be harmed. We already see market slowing down. We may have a further delay in implementation of reform of Health Insurance System. However I am not predicting severe problems in the health care sector.
Being moderately concerned I am looking in the nearest future of Ukraine with a bit of optimism.