After a communist depression and a capitalist boom, it seems Ukraine is now heading for a capitalist depression: GDP plunged by an annual 25%-30% in the year to January and February. Global demand for steel, the country’s main export, has collapsed; industrial production was down 34% year-on-year in January. The other main problem is that like many other European countries, its boom was fuelled by borrowed money, and the credit crunch has massively reduced capital flows.
Of Ukraine’s loans and mortgages, 60% are held in dollars, so the sharp fall in the local currency, the hryvnia, has been a heavy blow to consumers and banks. The International Monetary Fund (IMF) has already stepped in to shore up the banking system and economy. But the president and the prime minister “devote an inordinate amount of time to fighting with each other” rather than tackling the economic mess, said Economist.com, delaying the next tranche of a $16bn IMF rescue package.
Unemployment has doubled to one million since the autumn and a third of household bank deposits have been withdrawn in the past six months, said Roman Olearchyk in the FT. No wonder voters flocked to a nationalist opposition party in a recent regional election.
What next for Ukraine?
With the entire global economy in the doldrums, the region won’t bounce back rapidly as Asia did after the Asian crisis, said Lex in the FT. The situation is more akin to the Latin American crisis, after which it took the region four years for its GDP to reach pre-crisis levels. Now there’s “something for Ukraine’s fractious parliament” to ponder.