Prospects of Ukraine's economy: Unemployment, high inflation, and wage arrears

Author : Olexandr Honcharov

Source : 112 Ukraine

The hryvnia will continue to fluctuate, creating the most favored circumstances for the currency speculators
15:40, 10 May 2018

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I really want to believe that Ukrainian economy would defeat the crisis and would sustainably develop. However, the improvement of the GDP volumes does not yet mean the long-awaited “defeat” and, unfortunately, the whole situation does not instill confidence. Remember, recently we have heard about some positive dynamics in the Ukrainian market, and at least a couple of times the economic situation managed to deteriorate. The politicians were spreading optimism, calling these improvements green sprouts of the country's economy, but these sprouts have quickly withered.

For example, unemployment in Ukraine declines quite slowly. Judge for yourself: according to the State Statistics Service, in February this year, the official unemployment rate rose by 0.1% to 1.5%, and as of March 1, the State Employment Service has registered 383 700 unemployed people. Then in March 2018, the official unemployment rate dropped by 0.1% to 1.4%, respectively, the State Statistics Service stated, and as of April 1, 2018, 366,900 unemployed were already registered by the body. But the worst thing is when Ukrainians generally cease to seek work in their native village or city and start looking towards the labor market of neighboring countries.

Related: Exchange rate for the hryvnia becomes more optimistic

Director of the Department of Monetary Policy and Economic Analysis of Ukraine's National Bank (NBU), Serhiy Nikolaichuk, in an interview with the Polish edition, has noted: "In the short term, we predict that emigration will continue to grow, but in the medium term a certain convergence of wages and productivity levels is expected, which will help calm the situation... We felt that over the past two years, migration has led to a decrease in our workforce by 5% -8% (not on a permanent basis, but still)." Well, it is not surprising that in t2017, the official unemployment rate reached 10%, which was the highest in the last 15 years.

The tendency of further increase in the total amount of arrears in payment of wages, which as of March 1, 2018 (according to official data of the State Statistics Committee), was quite alarming and even dangerous, remains at 9.4 million USD (in comparison with the same month of the last 2017 this debt grew by 23%). And do not forget about the total high cost for utility tariffs and energy resources, as well as for food and clothing. National Bank firmly assures that the current, 2018 will be the last with such a high two-digit inflation for goods and services, in the next 2019 and 2020, inflation will slow down sharply. Although we remember recent unrealized forecasts of the NBU, when for the last year, 2017, inflation was planned at 8%, in practice it reached 13.7%.

Related: Big Mac Index reveals Ukraine’s hryvnia undervalued by 69%

Therefore, both positive and negative trends are very unstable in Ukraine's economy. Moreover, from the beginning of 2018, the sharp increase in the discount rate of the NBU to 17% and issuing of three- and six-month government bonds (yield bonds more than 17% per annum) are very alarming signals. This means that the Cabinet expects a recession again. In confirmation of this, the Ministry of Finance plans to attract up to $ 2 billion in the foreign market in 2018, which has already been agreed with the International Monetary Fund under the Enhanced Financing Facility (EFF).

However, without an increase in the industrial production, such expensive and considerable borrowing in international markets cannot be interpreted as an important positive factor. The problem is also that the opportunities for improving the situation in the real sector of the economy are not very high; the probability of deterioration is much higher. Again, according to the State Statistics Committee of Ukraine, industrial production in March this year fell by 1.4% compared with February this year 2018. And what will happen to the hryvnia against this background? My assumption is that with the increasing capital outflow from Ukraine, the National Bank will further prefer to reduce its complicity in the foreign exchange market, reducing the volume of the interventions.

Related: Hryvnia bears the cost of mistakes of Ukraine's Cabinet and Parliament

The hryvnia will continue to fluctuate, creating the most favored circumstances for the currency speculators. And specialists eagerly note that our national currency is moving under the influence and under the influence of the financial authorities. Now it is clear where the forecasts for strengthening the hryvnia come from. Although political risks can significantly affect hryvnia exchange rate. And yet, assessing the situation on the Ukrainian market, it is better to monitor the dynamics of economic migration flows from Ukraine. Also, close monitoring the levels of unemployment, the reduction of record inflation, and the reduction of huge wage arrears are necessary.

Related: What better says about Ukraine's economy: dollar rate or inflation?

But what will happen next? I think we need to prepare for the worst. Why? Because the summer and autumn are traditionally disastrous for the Ukrainian economy, there is very little money in the budget, and customs revenues fall, while the social spending is huge. Accordingly, it is necessary to prepare for the weakening of hryvnia, another round of inflation and an increase in utility tariffs and energy prices. I would like my forecasts to fail. What should we do now? First of all, we should stop the further destruction of the system of state administration. And putting blame on the external factor only.

Yes, in these hardest conditions, Prime Minister Groysman, with his usual enthusiasm, is trying to cut the budget expenditures and simultaneously support economic growth. In addition, we also have constant fears about the “union of trembling deer and rickety horse”, I mean western periphery and eastern hryvnia business. Will they get along together?! In case of success, we will see a better and more reliable economy of the country, and all Ukrainians will be in the black. I hope; may God give!

This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

Related: Termination of economic cooperation with Russia makes Ukraine stronger, - Groysman

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