Executive summary:
In 2011 Ukraine’s economy continued recovering from the crisis. The economic growth was supported by domestic demand, while external demand remained weak. The year was marked by large number of negotiations, major of which did not resulted in favourable results for the country. The Government did not continue implementation of reforms in most sectors. Political instability again became one of the major risks for future development of Ukraine. Another risk further related to global economic slowdown.
Politics. Over the year Ukraine tried to manoeuvre between European and Eurasian economic integration projects. Cooperation with the IMF was stagnating due to unwillingness of Ukrainian government to conduct required reforms.
Real Sector. Real GDP grew by 5.2% in 2011 due to strong domestic demand. External demand remained weak. As a result, output in all export-oriented sectors remained lower than before the crisis. Real gross fixed capital accumulation increased by 10.1%. Investments grew due to higher commercial construction and purchase of machine and equipment primarily attributed to the preparation to EURO-2012.
Agriculture. Agricultural policy continued to be ad hoc and unfair, which harmed investment climate in the sector. Agricultural output increased by 17.5% due to record harvest of most crops.
Energy policy. Ukraine became a member of the European Energy Community, which requires implementing gas market reforms. As Ukraine failed to negotiate with Russian Gasprom reduction in gas prices the Government announced a strategy to decrease an energy dependency on Russia.
Infrastructure. Major infrastructure projects were related to the preparation to the EURO-2012. They include renovation of airports, railroads and stadiums. The National Commission for Public Utility markets was created with responsibility to define utility tariffs.
Balance of Payment. The consolidated balance of payment was in deficit at USD 2.5 bn (1.5% of GDP). Increase in trade deficit resulted in widening of current account deficit to 5.5% of GDP.
Income: Improved financial stance of companies and raised minimum wage stimulated increase in real disposable income at 6.1%. Real income from social assistance payments and pensions grew only by 2.7% due to high fiscal pressure.
Fiscal policy. The Government amended the Tax Code during the year, even though it was introduced only in the beginning of the year. Tax administration burden was heavy, while automatic VAT refund was not fully implemented. The central fiscal expenditures were executed at only 93.8% of plan as the Government was not able to finance fiscal gap.
Business climate. Throughout the year managers’ assessment of overall economic conditions was quite pessimistic. Excessive taxation, insufficient demand, lack of financing and unfavourable regulatory climate were among major impediments to business development.
Monetary policy. Average consumer inflation decelerated to 8.0% primarily due to slowdown in food prices. The monetary policy was tight as the NBU attempted to diminish pressure on the currency exchange market.
