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Economic Summary for Ukraine

  • Year 2006: Economic Summary for Ukraine

    16.04.2006
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    According to the preliminary estimate of the Derzhkomstat, in 2006 real GDP increased by 7.1%, significantly accelerating during the year. In January the growth was estimated at mere 0.9% yoy. In nominal terms, the GDP is estimated at around UAH 536 bn, or USD 106 bn.

    The acceleration of economic growth could be explained by a recovery of investment activity (see Investments), continued growth in household consumption, and gradual improvement of external demand (see Balance of payments), in particular, due to favourable trends on the world metal market. Also, there was a growth of external demand for Ukraine’s machinery, particularly in the CIS countries (see Commodity trade).

    The important feature of 2006 was continued growth of household consumption that was estimated at 18.8% yoy during the nine months of the year, while the preliminary annual figure is 14.2% yoy. Overall real household consumption more than doubled since 2000. This explosion has been supported by high growth rates of incomes (see Wages and incomes) and rapid expansion of household credits (see Banking). The fastest growing components of consumption were clothing and shoes (33.2% yoy between January and September), and services, particularly “rest and culture” (35.0% yoy). The increased demand for services stimulated domestic production, reducing sensitivity of Ukraine’s economic growth to volatility of the world market.

    On supply side, the major driving forces for value added growth were industry (see Industrial output) and services, especially trade and transportation. In particular, value added in trade grew by 17.7% yoy in contrast with the reduction in 2005. Also, since February 2006 growth in construction value added turned positive thanks to business investments and upsurge in residential construction. At the same time, value added in agriculture stayed close to zero as low wheat harvest counterweighted decent harvest of other crops and growing animal breeding production. The growth rates of real GDP in 2006 significantly exceed estimates done during the year. It is mainly explained by higher than expected resilience of the economy to imported gas price shock. The mismatch between estimated and actual figures could be attributed to increased world prices for metals and chemicals that partially compensated for the shock, and high initial capacity for energy saving. However, the further capacity of the Ukrainian economy to sustain the shock remains unknown.

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    Research spheres:  Business trends, Macroeconomics
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