Europe-Ukraine price paradigm

02.08.2011
| Экономические известия
Goods supplied from Europe may become cheaper even without serious devaluation of the euro. “EU producers can lower the prices of their products in order to expand their markets abroad, which will lead to a drop in the prices of certain goods that are imported by Ukraine, for example, household appliances, automobiles, etc.,” says Chief Economist at Dragon Capital  Olena Bilan .

Ailing economies of the EU countries and the declining value of the euro currency due the debt crisis will trigger a decrease in consumer goods prices

VK.Widgets.Like("vk_like", {type: "vertical"}); Tweet The aggravating crisis in the eurozone may inflict a serious blow to the economies of EU countries. “Earlier analysts were saying that global financial crisis would end in 2012. Today, they forecast that it may only end in 2015. EU and other countries will be busy settling crisis problems over the next several years and the growth of their economies is not on the horizon. It is possible that GDP growth in certain countries in the euro zone will fall,” says President of Ukrainian Analytical Center Oleksandr Okhrymenko

Folding of lending and cuts in social expenditure in order to reduce budget deficits will cause a decrease in demand in EU countries and a slowdown in production. According to assessments of leading research and statistics institutes of Europe – the French Insee, Italian Istat and German Ifo, GDP growth rates in 17 countries of the euro zone in Q2 2011 have decreased to 0.3% from 0.8% in Q1.

According to their forecasts, the region’s economy may grow by a miserly 2%.

Only the devaluation of the euro currency, which continues under the pressure of the crisis, could be beneficial for some European producers.

Last Monday, the euro fell to a record low level versus the Swiss franc and continued to decline against the U.S. dollar. By July 18, quotations of the value of the European currency against the U.S. dollar plunged further to US $1.4071 and that is not the limit.

“In the event of a further drop in the euro rate, the competitiveness of goods produced in the euro zone will improve. However, in order for this to happen the euro must fall in value on the FOREX market by at least 3-5% to 1.3300-1.3600 per U.S. dollar. In this case, the prices of European goods sold in Ukraine may fall. This could pertain to certain marks of automobiles and food products. The prices, however, will not decrease by more than 2-3% and only 3-4 months from now,” says Director of the Information and Analysis Center of the Forex Club in Ukraine Mykola Ivchenko.

Practice has shown that if the euro devalues, European commodities in Ukraine will become cheaper at a much slower rate than the rate of devaluation of the single European currency. Sellers understand that due to the high volatility of the euro exchange rate, the period of its decline may quickly take an upturn. This precisely the reason retailers are not risking to lower their prices too quickly.

Experts do not rule out that quite soon the import of goods from EU countries to Ukraine will rise.

“European companies will be seeking ways to expand their sales markets due to a decline on domestic markets. This could lead to an increase in the import of European goods, including to Ukraine,” says Director of Economic Programs at Razumkov Center Vasyl Yurchyshyn.

This is even more applicable seeing as the stable growth in domestic demand is observed in Ukraine, which is heated up by the increase in consumer lending. Moreover, goods supplied from Europe may become cheaper even without serious devaluation of the euro. “EU producers can lower the prices of their products in order to expand their markets abroad, which will lead to a drop in the prices of certain goods that are imported by Ukraine, for example, household appliances, automobiles, etc.,” says Chief Economist at Dragon Capital Olena Bilan.

However, there is a different side to this coin. Financial market analysts are convinced that the current problems in the EU will become a headache not only for European manufacturers, but might also seriously undermine the Ukrainian economy.

In particular, the decrease in consumption in euro zone countries will foster an increase in the export of Ukrainian products and, as a result, a slowdown in industrial production. “Seeing as the basic positions of Ukrainian export are nearly divided in half between Russia and the EU, a fall in demand for Ukrainian goods in Europe will deal a serious blow to the profits of large industrial enterprises in Ukraine and aggravate the current disputes with Moscow,” Director of the Da Vinci AG analytical group Anatoliy Baronin believes.