Ukraine's Economic Growth Slumps

KIEV, Ukraine -- Ukraine's fast-growing economy is losing some of its zip as uncertainty about the investment environment and lower metal prices take their toll.
Growth in the first six months of this year was 4%, compared with almost 13% in the same period a year earlier.

The government has warned it may trim its 2005 growth forecast to 8%, down from the stellar 19.1% the year before.

Ukraine has gone through a difficult period since the ruling administration was overthrown last year.


After long-standing President Leonid Kuchma was toppled in the Orange Revolution, the new government pledged to cut corruption, revitalise the economy, improve living standards, and move Ukraine closer to its western neighbours.

Despite the good intentions, the administration has failed to push through legislation paving the way for membership of the World Trade Organization and recent debates have ended in parliamentary punch ups.

With the good will that followed the change in power fading, the state of the economy has come back into the focus.

Figures released earlier this week showed that Ukraine's foreign trade surplus during the first five months of this year tumbled to $794.6m from $2.1bn in the same period a year earlier.

Speaking earlier this week, President Viktor Yushchenko admitted that some decisions taken after the revolution may have hurt the economy.

More than six months on from the ouster of Mr Kuchma, foreign investment in Ukraine has only increased by 3%.

About turn?

With that in mind, Mr Yushchenko said on Wednesday that Ukraine may reinstate special economic zones that gave tax breaks and cheap investment opportunities to both domestic and foreign companies.

The government is also continuing with its plans to review some of the controversial privatisations of the past. However, the much touted list of targets has yet to materialise.

On Tuesday, a Kiev court seized control of Nikopol Ferroallay Plant, which is owned by Viktor Pinchuk, the son-in-law of former President Mr Kuchma.

The government contends that a number of Ukraine's key assets were sold off to supporters of Mr Kuchma for a fraction of their real value.

While the move to review the state asset sales have won support, it also has created an air of uncertainty that has deterred foreign and domestic companies from investing in Ukraine.

The government, meanwhile, is not spending its budget to drive the economy but is using it to finance state pensions and wages ahead of elections scheduled for later this year.

According to the statistical office's economic growth figures, economic expansion slowed to 1.1% in June, down from 19.1% a year earlier.

Source: BBC News