Publication: Monitor Volume: 8 Issue: 14

In 2001, the Ukrainian economy recorded its best performance since independence, with GDP growth at between 8 percent and 9 percent and industrial output rising by a stunning 14.2 percent. Year-on-year consumer price inflation dropped to an all-time low of 6.1 percent in December 2001 (Reuters, January 8). At first glance, the results could not possibly be better. Following a solid 5.8 percent GDP growth in 2000, the economy masterfully utilized a set of very accommodating internal and external conditions to turn in a remarkable performance. Strong growth in exports, solid expansion in construction activity and a spectacular harvest combined with continued recovery in domestic demand. According to official sources, GDP grew 9.1 percent in the first ten months of the year. The slowdown in growth in the fourth quarter of 2001–GDP grew 10.8 percent in January-August–reflected weakening industrial sales that, in turn, mirrored weaker exports that accounted for almost 50 percent of Ukraine’s 2001 GDP (State Statistic Committee of Ukraine, Monthly Bulletin, October 2001).

Fueled by exports and very strong domestic demand, industrial output growth accelerated through August 2001. It then slowed slightly in the fourth quarter, but still recorded a 14.2 percent increase for the year overall. The boom has stretched across most industrial branches. With the exception of mining and quarrying, where output increased by a modest 4.1 percent in January-October, the industrial branches reported record growth rates. All key industrial branches, except for metals, recorded double-digit increases in output. Growth in output of metals and metal products, which still accounts for 23 percent of all industrial production in Ukraine, slowed drastically in the third quarter of 2001 from 15.2 percent in the first half of the year to just 8.3 percent in January-October. Although this slowdown reflected in part the statistical effect of very strong growth in output in this branch in late 2000, reduced exports of metals to Russia in the second half of the year have also played a role. Russian customs officials clamped down on imports of steel pipes following the introduction of import quotas.

Strong growth in domestic demand provided a good countermeasure to slowing external demand in the second half of 2001. It permitted manufacturers to redirect some of their sales while keeping output growth rates high. Rapid growth in real wages and household disposable income produced increases in private consumption. Household consumption is reported to have grown 12.6 percent through September. Retail sales and household disposable income grew by 11.5 percent and 11.8 percent, respectively, in the same period. Strong growth in spending was supported by a rise in consumer confidence. Official unemployment remained very low, at 3.6 percent of the labor force. While ILO statistics suggest the real unemployment rate may be as high as 11.4 percent, the improved financial situation of many companies reduced the number of group lay-offs during the year.

Fueled by increased investment spending, construction activity in Ukraine remained buoyant. Output in construction grew 6.7 percent in January-October, only slightly less than the 9.1 percent growth reported for the first half of 2001. Gross accumulation increased by 23.5 percent in January-September. Investment in machinery and equipment grew 11.5 percent in the first ten months.