The economy keeps growing

A study by the company GFK Ukraine showed that in February the consumer confidence of Ukrainians worsened and returned to the level of late 2009. According to the company, at the same time a growth of unemployment expectations and a considerable drop in the inclination to make big purchases were also registered. As the study’s authors point out, the drop in the consumer confidence index in Ukraine (determined through a selective study of households, in which a thousand people aged 15 to 59 are surveyed) can slow down the growth of internal demand.

At the same time, the study showed that inflation expectations improved a little, decreasing by 4.6 points. But this was true in February. Now the situation is changing. Financial expert Viktor Suslov says that the inflation prognosis in Ukraine is inconsolable. Pointing out that in 2010 prices in industry increased by 18 percent on average, and consumer inflation was at 9 percent, the expert expressed doubts about the official data. In his opinion, the 296 items in the consumer basket are selected so that outdated goods are still among them. The prices, say, for such a rare product nowadays as sateen underpants, don’t grow. In view of this, Suslov concludes that the methodology of inflation calculation used today should be improved, since it is “not completely reliable and doesn’t fully reflect the real state of the economy.” In his opinion, the corresponding document should be approved in the parliament.

However, even with today’s calculation methodology, the expert supposes, inflation rates remain high. In his opinion, raising tariffs on utilities and electricity, as well as transportation expenditures, will accelerate the inflation growth. The new Tax Code also had some influence on it. And the GDP growth rate is not enough for him, since the population’s welfare is not ensured. According to the expert, payments from the budget to cover and handle the state debt are not compensated by the growth of budget revenues. Among other things to improve the budget and increase the understanding between the ruling class and the rest of Ukrainians, Suslov suggests to sell numerous sanatoriums and state dachas.

The president of the Civic Center for Anti-Crisis Studies Yaroslav Zhalilo points out that the dynamics of the post-crisis recovery in the country are rather slow. This leads to a situation in which only the pre-crisis economic model recovers, which in turn made it very sensitive to changes on world markets. In his opinion, “in Ukraine the index of wholesale prices traditionally exceeds the dynamics of consumer prices.” Export products, he says, constitute about 50 percent of the Ukrainian GDP, therefore “the growth of export prices can be the major driving force for price increases in industry.”

Zhalilo doesn’t see much sense in revising the consumer basket, as it would not lead to considerable changes in both the inflation level the population feels and its official figure. The difference appears because there is a “big differentiation between different sorts of goods, between cities and villages, between different regions of Ukraine.” The problem is, according to Zhalilo, that the country fell into financial and budgetary traps: stabilization is being achieved in a depressed economy and with absolutely insufficient internal demand.

Oleh Ustenko, executive director of the International Bleyzer Foundation, commenting on the statement of Prime Minister Mykola Azarov on the growth of the gross domestic product in January-February this year by 5.5 percent, compared with the same period last year, didn’t share the premier’s optimism: “There are no reasons to be proud of Ukraine’s economy. Yes, Ukraine showed okay results in January-February. Yes, industrial production in February increased by 11.5 percent and this increase was mostly ensured by means of export; retail sales and transportation services grew rapidly, but our prognosis for economic growth this year remains the same: four percent GDP growth this year and four percent in 2012,” he said. Ustenko is confident that the achieved growth rate is not enough even to reach the pre-crisis level this year. He supposes that “without serious reforms, which would improve the business climate, Ukraine will be doomed to oscillating growth in the future, too.” Ustenko points out that tomorrow’s industrial growth is based on capital investments, which, unfortunately, are not big so far.

However, the somber motifs in these statements, as it appears, are a bit exaggerated. For example, one can look at the report of State Committee for Statistics dealing with financial figures of the country’s enterprises. Enterprises and organizations in Ukraine in January 2011, saw gross income from their activities in the amount of 5.295 billion hryvnias, 3.5 times more than in January 2010. According to the data of the State Committee for Statistics, 58.7 percent of Ukraine’s enterprises worked successfully in January 2011, bringing in over 14.4 billion hryvnias of revenues, which is 23.8 percent more compared than in January 2010. But, all other enterprises (41.3 percent) still operated with losses. However, in January 2011 these losses decreased by 9.9 percent as compared with January of the previous year.