Vain expectations of economic recovery

The failures of the current foreign policy of Ukraine have for some time diverted attention from economic troubles. Moreover, the State Statistics Service of Ukraine presented an increase in industrial production by 2% in the first half of the year compared to last year, which allegedly should indicate the beginning of economic recovery in the country. However, a less exalted view provokes the expectation of very disappointing results approaching.

First of all, one should note that this 2% of industrial growth occurred in the context of (coronavirus) collapse of last year, so in 2021 (in the best case scenario) it will only be able to slow down, but not return to the positive dynamics. Indeed, in general from the beginning of 2020, industrial decline was 9%, and it is not clear why the "reversal" may occur (the natural ability of domestic business to survive is still extremely insufficient). Obviously, the recovery of industry could be expected, firstly, from the inflow of significant investment, and secondly, from the strengthening of external demand for Ukrainian metallurgy, which until recently was the main driving force of industrial production and exports.

However, firstly, today it is awkward to even mention investments (including investments thanks to the "investment nanny"): the gross capital accumulation in the first quarter amounted to only a symbolic 0.3% (!) of GDP, which indicates the practical refusal of businesses to invest. Secondly, more favourable conditions and increasing global demand for domestic metallurgy could be realistic, given the launch of large investment projects in new strategic projects in the United States. However, after the "blackmail" statements of some of our high-ranking officials about the "turn of Ukraine to the East", it is unlikely that domestic metallurgists will be welcomed in American markets.

Along with this, one could expect positive signals from the agricultural sector. Especially since the weather conditions this year are slightly better than last year and, consequently, so are the expectations of the harvest. However, firstly, they are not much better, considering the heat and downpours of recent weeks; therefore expectations remain cautious. Secondly, more importantly, given the losses of farmers last spring from the strict ban on transport, there are grounds for doubting the reliability of the use of the agricultural base facing forthcoming further restrictions and prohibitions.

The fact is that mass protests are most likely to resume in autumn (as a result of the already announced increase in utility tariffs, increased tax pressure, revision of social benefits). Most likely the authorities will resort to "already tested" measures: they will announce the strengthening of anti-coronavirus restrictions ostensibly to protect the population, but in fact in order to complicate protest rallies, demonstrations, transportation of people, etc. Although it is already known that the rigidity of power restrictions only leads to even more irritation of people, it does not help to counteract the coronavirus. 

Of course, transportation - cargo and people - will get hurt the first and hardest. This will consequently put negative pressure on production capacity. Thus, in the first half of last year, with industry falling by 8%, the agricultural sector by 5.5%, freight turnover fell by almost 20%, which, in its turn, increased inflationary pressures and inflation expectations (due to the impossibility of supply). Obviously, the bans of this autumn will have no less vigorous negative consequences.

At the same time, the promised incentives and assistance to businesses and households did not actually take place. On the contrary, the Ministry of Finance confirms over fulfillment of planned budget revenues and, at the same time, under failure of planned expenditures (including in financing defense and security). This increases fiscal pressure on businesses that are still trying to get out of the coronavirus shock. 

The NBU also “helps” the Ministry of Finance to increase pressure on business. One should state the failure of programs to expand favorable loans to small businesses or households. Firstly, the available minimum amounts of loans under soft programs (in particular, "5-7-9") can not affect the real environment in general. Secondly, in many cases access to resources becomes more difficult. Indeed, interest rates on loans to businesses with an annual income of 50 to 500 thousand euros (an important category of business to which preferential programs could be directed) did not decrease, but the opposite, they increased significantly - from 9.6% in March to 16.5% in May.

So why should banks "strain" by expanding lending to the real sector, if there are quite reliable sources of income growth. Thus, the weighted average yield on Government bonds (OVDPs) placement in the primary market resumed its growth: whilst in March it was 10.90%, in June it reached 11.66%. This was a good attractive signal for foreign investors: OVDPs owned by non-residents from mid-April to mid-July increased by UAH 10 billion.\

And after the recent increase of the NBU discount rate to 8% (which allegedly has an anti-inflationary effect), rates on the interbank market will inevitably rise (up to 6.5-7%) and even faster for the real sector (at least up to 2-3 percentage points), while further deteriorating the competitiveness of production.

Any freshman knows that tight restrictive fiscal policies accompanied by restricted monetary policies inevitably lead to a deterioration in the macroeconomic environment (increase of interest rates and inflation) and the suppression of economic activity. However, of course, our government does not belong to the category of freshmen. This only confirms the doubts about the economic recovery by the end of the year.

Vasyl Yurchyshyn

Director, Economic Programmes

Born in 1955 in Kamyanets-Podilskyi.


T. Shevchenko Kyiv State University, Department of Cybernetics (1977).

Institute of Public Administration and Local Government at the Cabinet of Ministers of Ukraine (1994).

Professor in Public Administration. Author of nearly 100 scientific works.


In 1977–1993, worked at the Kyiv University as an engineer, research fellow and senior research fellow;

1994–1999 — head economic researcher at the International Centre for Policy Studies, Fund for Banking and Finance Development;

1999–2004 — Assistant Professor, Department of Economic Policy of the Ukrainian (currently, National) Academy of Public Administration, office of the President of Ukraine;

1999–2004 — Research Director at the Agency of Humanitarian Technologies, later — Agency for Social Analysis;

2002–2003 — advisor to the Minister of Economy of Ukraine;

since April, 2004 — Professor, Department of Economic Policy of the National Academy of Public Administration, office of the President of Ukraine;

since June, 2005 — Economic Programmes Director at Razumkov Centre.

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