Manufacturing Slump Continues Into June

KIEV, Ukraine -- Ukraine’s manufacturing slump persisted in June slowing down the economy and increasing doubts among analysts over whether the government can raise enough revenue to meet budget obligations this year.

Tomas Fiala

The country’s industrial output contracted 5.7% on the year in June, the State Statistics Committee reported Wednesday.

The output in January through June was down 5.3% on the year, the committee said.

The figures suggest the central bank’s interest rate cut in early June has failed to boost the economy with some analysts now seeing the economy entering recession. 

“Economic growth has stopped, we are in recession and our expectations are for a zero growth this year,” said Tomas Fiala, the president of the European Business Association in Ukraine, according to Unian report.

Ukraine’s economy contracted 1.3% in the first quarter from a year earlier, reflecting weakening demand for the country’s exports, mostly steel.

The government forecast the economy to grow 3.4% on the year in 2013, an extremely optimistic forecast that now poses a risk for the country’s budget deficit.

With slower-than-expected growth, the government raises less revenue, but still has to meet its spending obligations, which widens budget deficit.

The government originally approved the budget deficit at 50.4 billion hryvnias, or 3.2% of gross domestic product, in 2013, but Fiala said the deficit will most likely widen to 5%.

Tetiana Sysoyeva, the head of the policy department at the Finance Mnistry, said the budget deficit widened to 22.5 billion hryvnias in January through June, up from 6.7 billion hryvnias in the same period a year ago.

Ukraine’s current account deficit, a measure of hard cash inflow and outflow, will widen to 8% of GDP in 2013, posing a risk for the local currency.

“This is a dangerous number,” he said, adding that it may increase downward pressure on the hryvnia.

The NBU predicted Ukraine’s current account deficit at between 3% and 4% of GDP in 2013.

The NBU cut its discount rate, the rate at which it lends money to commercial banks, to 7% from 7.5% effective June 10, seeking to boost economic growth.

Valeriy Prokhorenko, the NBU’s deputy governor, said the bank will be ready to continue cutting the rate until the economy accelerates.

Source: Ukrainian Journal