Publication: Monitor Volume: 7 Issue: 106

Ukrainian politics, which have been consumed by the sensational “Kuchmagate” scandal and the dismissal of the Yushchenko government, have overshadowed the good news about Ukraine’s continuing economic expansion. Following the 6 percent growth in GDP reported for 2000, the expansion has apparently accelerated this year, as 8.5 percent growth was reported for January-April. Industrial output grew 18 percent during the first four months of the year, thanks in part to the 21 percent growth recorded in April (By contrast, industrial output in Russia grew by less than 4 percent during the first four months of the year.) The strongest production growth in Ukrainian industry was reported in the coke and oil-processing branches, and in construction materials. Ukraine’s industrial surge has also been supported by strong growth in exports, which rose 26 percent in the first quarter.

As in 2000, output growth this year is being supported by solid increases in household consumption and investment spending by businesses. Household disposable income was reported up 7 percent in real terms last year, due to rapid growth in the numbers of newly created small businesses, large increases in real wages in industry and the service sector, and larger payouts of pensions and social benefits. Spending was also boosted by household decisions to draw down savings, based on more optimism about the future economic climate. Rural incomes expanded rapidly due to strong sales of food products. Pension arrears were fully paid off in September 2000, further boosting to consumption. Strong export revenues boosted the financial situation of many companies and led to a rapid expansion of gross fixed capital investment. After growing 11 percent last year, investment outlays were reported up 23 percent during the first four months of 2001.

Growth in 2001 could to gain additional momentum from an unlikely source, the agricultural sector. While it is often viewed as one of the least-reformed parts of the Ukrainian economy, improved weather conditions this year seem to be laying the foundation for a bumper crop following the drought of 2000. According to the most recent estimates Ukrainian farms have almost completed this year’s sowing and expect to harvest at least 35 million tons of grain. If these estimates are correct, this year’s grain harvest could dwarf the 20 million ton harvests reported in 1999 and 2000. In light of these developments, the government’s recent decision to boost its forecast for GDP growth in 2001 from 4 percent to 6-8 percent does not seem entirely unrealistic (Reuters, Bloomberg May 1-25).