Unbiased view on economy of Ukraine: Nine months of 2017

Author : Oleksandr Okhrimenko

Source :

Nine months is enough time to understand what is going on with our economy. The president and the prime minister constantly say that there is an unprecedented growth in our economic indicators, meanwhile Ukrainians are not satisfied with prices and salaries, and business constantly complains that it is hard to work. What really happens?
22:44, 31 October 2017

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Let's start with the sad news. This year, agriculture and industry showed a decrease. It was a small fall, but it’s a fact. For 9 months of 2017, the agricultural production index fell by 0.7%, and the industrial production index fell by 0.3% compared to the same period last year. In fact, we can say that there is no fall, but there is no growth. Agriculture and industry have entered a stage of stagnation, and this is dangerous. It’s easy to get into stagnation easily, but how to get out of it ...

The fall in agriculture has two factors: unsuccessful natural conditions this year and VAT. When the preferential VAT regime for agricultural producers was abolished, authorities promised that there would be subsidies, like in the EU. This did not work. And there are not enough grants, and only "friends" receive them. As a result, it is not always profitable for agricultural producers to make certain types of products, if they do not manage to earn good money.

In the industry, there are other problems: the blockade of ODLO and the weak effect of free trade zone with the EU. The blockade of ORDLO led to a significant drop in coal production, production of coke and, most importantly, metal. As a result, in natural terms, Ukrainian metallurgy fell, both as a producer and as an exporter. And now this cannot be corrected. Now the food industry is the leader of Ukrainian industry. But Ukrainians cannot eat so much food, especially at such prices. And the export of food is not an easy task. The EU countries are happy to buy sunflower oil in Ukraine, and they do not want to buy chocolate or biscuits. As a result, now the food industry is growing mainly in the segment of production of food semi-finished products, but not in the production of finished products. Earlier one could talk about the role of engineering in the industry of Ukraine. But the Ukrainian machine-building industry fell to the production of ball bearings and wires for export to the EU. Partially, the export of transformers, engines and spare parts to the CIS countries is saving our exports level. But it's usually old contracts.

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In Ukraine, construction is growing. For 9 months, the index of construction production increased by 23.8% compared to the same period last year. In many respects this was due to the growth of housing construction. There are lots of talks and debates about housing prices. But the fact that Ukrainians are actually buying and building more housing this year than in the past, remains and this significantly stimulates the growth of construction. For 9 months of 2017 the growth of housing construction was 13%. But the main driver in Ukraine was the construction of roads. It is the construction and repair of roads that gives such a dizzying increase in construction. But maybe the reason for this growth was a rise in prices. Very often, prices for the construction of roads in Ukraine are overstated, and the quality obviously does not correspond to the amount of money spent.

As for prices in general, for 9 months of 2017 wholesale prices of industry grew by almost 30%, construction - by 13%, agricultural products - by 11%. Indeed, this year the prices are the best. And this is most pleasing to sellers, but it irritates buyers. With a relatively stable exchange rate of hryvnia, we have achieved a significant price increase in virtually all spheres of the economy, although the economy itself is rather stagnant. This effect is called stagflation, although the name does not change the thing.

As a result of the growth of wholesale prices, the growth of retail prices this year at the level of 14.6% does not seem so already great. Therefore, although retail sales for 9 months of 2017 grew by 8%, but it is, rather, a rise in prices than the growth of real purchases. It turns out that, despite the increase in wages, the Ukrainians did not win anything this year. The rise in prices "ate" the growth of the minimum wage that Groysman so boasted of and now again it is necessary to raise both the minimum and average salaries. How long will this last? In general, it was Groysman's mistake when he decided to manually increase the purchasing power of Ukrainians. In the 90s another prime minister, Fokin, also tried to do so, but only hyperinflation was obtained. So we can say simply: Groysman tried, and he did not succeed.

What next? It’s hard to tell. Figures show the fact of stagnation, but the Ukrainian authorities do not recognize this and continue to talk about the mythical growth of the economy. The situation becomes only more confusing. One shouldn’t hope that a miracle will happen and the economy will, by a strange coincidence, grow independently. It is necessary to make at least one real economic reform, and then, maybe, there will be economic growth. In the meantime, we are waiting for the better news and learning how to survive during the "reforms of Poroshenko and Groysman."

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