Macroeconomic Forecast Ukraine

BMI View: The 2006 budget, currently undergoing a fraught passage through parliament, represents a key risk to our economic assumptions for next year. Currently, we are pencilling in a moderate recovery in GDP growth in 2006, to around 4% from the 2.5% rate estimated for 2005. However, pressure from deputies to increase social spending in next year's budget could impact on the new government's plans to allocate more resources to state investment. A slashing of state investment to help contain the runaway public finances has been a key factor behind this year's dramatic slowing of GDP growth, to just 2.8% y-o-y in the first nine months from 13.4% a year previously. In addition, further hikes in social spending within the budget proper, or a spendthrift use of the US$4.8bn windfall from the reprivatisation of the Kryvorizhstal steel mill, could see inflation significantly exceed our 9.5% end-2006 forecast.

To read the full article, please choose one of the following options: