Ukraine in 2022: Key trends and expectations

Author : Anna Peshkova

Source : 112 Ukraine

In 2022, the government will reap the benefits of all previous decisions
10:47, 17 January 2022

The outgoing year for Ukrainians was the year of the beginning of recovery from the difficult 2020, the closure of the media, the payment of Zelensky’s thousand for vaccination, and the heat of the gas issue. Experts are very cautious about their assessments of economic development, but they agree that Ukraine's prospects are not bright. In the economy - uncertainty due to the failure in the energy sector, inflation will "eat up" almost all of the economic growth of our country, and in politics - the growth of the crisis.

Related: Why groceries to keep getting more expensive in 2022?

About the income of Ukrainians, prices ranging from bread to real estate, the dollar exchange rate, and the entire country in 2022 - in our material.

Related: How Poland made 'economic miracle' at expense of Ukraine

Another year with a pandemic

The vaguest forecasts of experts relate to perhaps the most important topic - the course of the pandemic. For example, according to analysts at JPMorgan Chase and Bloomberg, in 2022 the world will be able to control the epidemic with the help of new vaccines and medicines. Billionaire Bill Gates also predicted that after the Omicron outbreak, the coronavirus would decline and be treated "more like seasonal flu." Experts around the world and, most importantly, the World Health Organization have high hopes not only for vaccines but also for new antiviral drugs. Among others, Pfizer's drug Paxlovid has already been approved, on which a big stake is being placed. Ukraine should receive these pills in the first quarter of 2022.

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At the same time, the authors of The Economist believe that the coronavirus will become a disease in developing countries with low rates of vaccination of the population. If we talk about Ukraine, which is just one of the developing countries, then it is too early to talk about the victory over the coronavirus in 2022.

Ukraine has enough drugs not only for basic mass vaccination but also for the introduction of booster vaccines. There are 9-10 million doses left in the country, and Ukraine should also receive more than 40 million doses through government purchases and COVAX. However, measures to stimulate vaccination, apparently, are not working, and there are no prerequisites to believe that it will actively grow in 2022, even despite the expansion of the list of professions for compulsory vaccination.

As of January 10, only 31.9% of the population are fully vaccinated, while in general, more than half of humanity is vaccinated. According to the vaccination plan by the end of the year, Ukraine should vaccinate up to 70% of the population. As the head of the national technical group of experts on immunization said, people who remained unvaccinated were "very difficult to reach" for various reasons. Analysts predict that it will be difficult to achieve this figure, and rely on vaccinations for about 53% of the population. Once this target is reached, the vaccination campaign may be deadlocked.

Related: Kyiv transport to become more expensive, - Mayor

Presumably, the decline in the incidence of Covid-19 will continue in Ukraine until mid-February. National Security and Defense Council of Ukraine (NSDC) Secretary Oleksiy Danilov said that a new wave could start from February 15-20 in connection with the Omicron strain. The second wave of coronavirus in 2022 is predicted by analysts at the Ukrainian Health Center for the fall. Much will depend on how different strains interact with each other, whether new mutations will appear. Three scenarios are considered. From 1.7 million to 1.9 million Ukrainians can get sick, and from 25,000 to 66,000 people can die.

In general, the quality of the care provided should have improved in 2022 due to the growth of salaries for doctors. However, in parallel with the pandemic, medical reform is unfolding in our country, in connection with which doctors will be fired in 2022, and medical institutions will be laid off. In particular, the authorities are putting 70 Ukrainian maternity wards under the knife. The National Health Service will deprive them of funding due to the insufficient number of births, in connection with which the local authorities will actually be forced to close these departments. Thus, the availability of medical care will be lower. There is also a positive: next year a project will start, in connection with which one children's and one adult hospital will be renovated in every regional center in the country.

Business without the support and "Big construction"

The Ukrainian economy will continue to grow in 2022, but it will be too slow. The Economy Ministry revised its forecast from 3.8% to 3.6%. In fact, this is "growth without growth", because a "breakthrough" requires indicators of at least 7-8% within 3-5 years. This can be achieved only with the help of successful reforms and the attraction of investments, which Ukraine cannot boast of.

The industry is growing, but also rather moderately: rather, nominally, in money, but in volumes, it will continue to decline. Even in 2021, export volumes were falling, and it was possible to earn more in foreign currency due to world prices. In 2022, due to a decrease in the volume of support programs for world countries, the volume of exports of Ukrainian production will also decrease. The situation may be especially pessimistic for the Ukrainian metallurgy, whose revenues, according to GMK Center estimates, may fall by 33%. This is due to the expected decrease in steel consumption in China and Turkey.

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It is also dangerous that industrial inflation in Ukraine can outpace consumer inflation more significantly than before. Incentives for production will gradually disappear since there is no point in doing business if production is becoming more expensive than finished goods.

Some of the industries, for example, mechanical engineering, had hope for protectionism from the state. In the middle of the year, the localization law will come into force, which introduces restrictions on public procurement. It will be possible to purchase at the state expense only goods that are at least partially produced in Ukraine. However, the law is written in such a way that it will not affect Ukrainian production globally: it will be enough to place only 10% of production. In addition, these restrictions will not apply to the EU and the US. So, the industry is unlikely to expect positive changes in 2022.

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As for business in general, according to UBS, world governments will not be able to continue supporting it at the same level. Analysts believed that its volume will drop to 2.5% of world GDP. Most likely, the trend will also affect Ukraine, which in previous pandemic years did not provide adequate support to the business.

Taking into account that the 2022 budget is a tax budget, the work of a business will be even more complicated: in addition to quarantine restrictions, it will still have to prepare for particularly active tax audits. In particular, the tax office will control the availability of cash registers, the delay of the mandatory introduction of which the business has not been able to achieve.

The Bureau of Economic Investigations will start working in full, but there are no great expectations from it since most of the positions in the Bureau were taken by former employees of the State Fiscal Service. Business fears violations of the Criminal Procedure Code and illegal actions on the part of BEB employees. The promised acceleration of justice and anti-corruption reforms in 2022 may save the situation, but it is not yet clear how effective they will be.

In Ukraine, a worsening of the previous trend is outlined: the gap between large and small businesses. Small and medium-sized businesses, taking into account the need to offer their employees competitive salaries, risks completely ceasing to exist after the next lockdown. More stable companies, holdings with sufficient operating resources, and subsidiaries of international companies will thus become stronger and stronger.

Despite this, the stake in "Big Construction" will continue. In 2022, the construction of the first autobahn from Krakovets to Brody and Rivne with a length of about 280 km will begin. Also, the authorities still do not write off the updated project of the Kyiv ring road: so much so that the owners of the plots along which it should pass are planned to be taken away according to an accelerated procedure. Large-scale construction of airports is also expected, which will contribute to the development of regions and tourism. True, due to the lack of proper competition for objects, some of them will have to compete with each other. In addition, the construction of a presidential university will be unfolding in the capital, but we will not see its launch in 2022: they plan to open the university a year later. All of this will, in part, give an impetus to the development of the economy through the creation of jobs.

Related: How Poland made 'economic miracle' at expense of Ukraine

The hryvnia will weaken

The dollar ended 2021 at UAH 27.2, but the national currency may weaken a little in the new year. This will be associated with a decrease in prices in the commodity markets, on which the well-being of Ukraine as a commodity-based country directly depends. In addition, experts from the National Academy of Agrarian Sciences predict a smaller harvest than in 2021, when 33 million tons were harvested, due to the prospects for insufficient moisture in the steppe zone. Due to low gas production, it will be necessary to buy it abroad, so that import prices will rise faster than export prices. Due to these factors, the country will have less than the dollar, as a result of which the national currency will weaken.

The hryvnia may also be shaken by the alleged systemic global outflow of speculative investments for developing countries, including from Ukraine, in connection with a change in the humanitarian policy of the US Federal Reserve System.

Financial analyst Oleksiy Kushch assumes that there will be no serious devaluation: the dollar may reach UAH 28.5. On average, economists predict the exchange rate at UAH 27.8 / USD. with weakening at the end of the year to UAH 28.1 / USD When preparing the budget, the Ministry of Economy predicted a much more pessimistic rate - 28.6 UAH / USD. Most likely, this estimate is associated with attempts to manually inflate the budget. Ukraine receives funds for the export of raw materials in foreign currency, so the higher the rate, the more chances that all revenue items will be fulfilled.

By the way, the Ministry of Digital Industry has mentioned the prospects of launching an electronic hryvnia in 2022 together with the National Bank. Minister Fedorov expects 2022 to be the "year of the digital leap."

The launch of Nord Stream 2 also adds fuel to the fire, which, according to the CEO of Uniper (one of the energy companies that invested in the project), will be certified in mid-2022.

Related: Ukraine to limit gas price for bread production companies

Prices will continue to rise

World food prices, according to the UN, have already reached their highest level in the last ten years. On the one hand, in 2022, inflation will be pushed upward by high energy prices, and on the other, it should slow down due to the reduction of financial injections by states into their economies.

The IMF predicts that inflation in our country will slow down to 7.1%, and the World Bank even predicts 5%. The Ukrainian National Bank has the same forecast. But there are doubts about the achievement of such an indicator. Ukraine has not been very active in supporting its economy financially before, but the collapse in the energy sector could be very significant for it. Analysts assume that inflation will remain at the same level (about 10.3%, according to the National Bank for 2021) and will "eat up" almost all of Ukraine's economic growth.

Food manufacturers are preparing Ukrainians for price increases: President of the All-Ukrainian Association of Bakers Yuriy Duchenko proposes a 30% increase. Zelensky's adviser Oleg Ustenko says that in the food group, the inflation rate can range from 10 to 20% per year.

Although the government is trying to avert the crisis by limiting the quarantine markup to ten percent, this only applies to basic foodstuffs. The government does not propose such mechanisms as reducing VAT or introducing a mechanism for export duties on food raw materials and semi-finished products. Moreover, in connection with the new law No. 5600, a new tax for farmers will be shifted onto the shoulders of buyers. In this regard, grain, meat and eggs may rise in price significantly.

Also, in connection with the same law No. 5600, alcohol will rise in price (up to 0.3 USD per liter) and communications due to the growth of rent paid by Internet operators for a radio frequency resource.

Related: Zelensky announces food stamps, - expert

In 2021, the risk of higher travel prices has already been reported. In the capital, they discussed the cost of a single trip at 0,7 USD and a travel card for 62 trips at 33 USD. There is a possibility that in 2022 prices will still rise due to the profitability of 0,55 USD per trip. Also, due to the increase in the cost of fuel, the price of air tickets has already increased, and in the future, it will continue to grow.

Population incomes are sinking

Prime Minister Denys Shmyhal predicts that the average monthly wage next year will amount to 55 USD, in December 2022 it will reach more than 640 USD. It should be understood that these are monthly averages, not median indicators, so the real salary may be slightly lower.

In the forecast of the Ministry of Economy, experts note that business activity will increase, and accordingly, the demand for labor will increase. Despite this, the situation on the labor market will remain difficult, and the unemployment rate will not reach pre-pandemic levels. According to the forecast of analytical agency Forrester, unemployment in Eastern Europe will be 9%.

High inflation will eat up part of the nominal growth in household income. Real incomes of citizens should grow by 5% in 2022, the ICU predicts. This growth will be the weakest over the past six years, according to the State Statistics Service. It was worse only in 2014 and 2015 when incomes were declining.

In addition, the situation may worsen for representatives of the IT sector. Despite the fact that the entire past experience of introducing special conditions for certain industries in Ukraine is negative, the authorities intervened in the IT-sphere, offering a special taxation regime for it "Diya City".

In the new year, the authorities will continue to try to make Ukraine an IT-country: no one retreats from the goal of increasing the share of IT in the country's GDP to 10% by 2024. The goal is to increase investment in innovation and jobs. However, most likely, the programmers themselves will have a hard time. The law contains a provision on the non-enticement of workers among the participants in the sphere. This can lead to harassment from employers, deterioration of opportunities to find new jobs. Many professionals will actually have to put up with unfair working conditions.

Related: Not coupons, but food stamps. Authorities plan to introduce special food cards in Ukraine

With an eye on the fact that the authorities have not planned anything to retain workers in Ukraine, the trend of the outflow of labor will continue. Moreover, countries are increasingly simplifying the conditions for migration: in neighboring Poland, already in 2022, they will issue work permits for up to 2 years instead of six months.

Pensions and social assistance

The 2022 budget is, alas, the poverty continuation budget. Social standards in it do not reach the necessary ones. Thus, the minimum pension is 70 USD, although, according to the calculations of the Ministry of Social Policy, it should be one and a half times higher and amount to 135 USD. Due to the fact that retirees' incomes do not keep pace with food inflation, they will have a hard time in 2022.

There are several stages of increasing the pension, but they are point-like. For example, people with disabilities will have their pensions raised, but the liquidators of the Chornobyl disaster without disabilities will have to be content with the previous amounts of about 73 USD per month. In March, payments will be indexed for those who are over 75 years old, and from October those who are over 70 years old and have an experience of 30-25 years will amount to more than 110 USD. Pensioners aged 70-75 will receive an additional payment of 11 USD. Taking into account that the average life expectancy in Ukraine is 72.4 years, citizens will not be content with an increased payment for long.

Minimum pension for Ukrainians

Obviously, there are not enough funds to adequately provide for the old age of Ukrainians, so officials in 2022 will vote for the accumulative pension reform. Although it can be introduced only in 2023, already this year we will find out how and in which funds they plan to invest.

In this situation, social populism can be predicted, regular payments of 35 USD, only not for vaccinations, but, for example, for pensioners. Presidential advisor Oleg Ustenko has already announced the possibility of payments to vulnerable groups of the population by analogy with "e-Support". According to him, this may be necessary in the event of a significant increase in food prices. The possibility of introducing so-called grocery receipts is being considered. However, experts are perplexed, why such a format of support, if people still spend social benefits on food.

If we talk about systemic methods of supporting the population, then they have not yet been announced for 2022. A “Helping Hand” program is proposed, which involves the allocation of up to 3500 USD to start a business, but it applies only to migrants and the unemployed from low-income families.

Reintegration of Donbas is increasingly less achievable

Last year, there were no breakthroughs in the "Minsk process", and everything indicates that in 2022 Kiev will continue to ignore the Minsk agreements, but it will not withdraw from them. This year, the Minsk agreements are 7 years old, but the Ukrainian authorities are likely to continue to drag on.

Donbass itself, regardless of the course of the negotiations, awaits further creeping integration into Russia. People who were born during the referendum have already gone to school. And those who went - graduated. The absence of concrete actions on the part of Ukraine and the mass certification of the Russian Federation will only contribute to this integration.

By the way, the language issue can intensify the situation in 2022. From July 16, not only institutions will be fined for violating the language law in Ukraine, but also specific people - civil servants, judges, waiters. Fines will start at 126 USD and reach 185 USD for waiters and 250 for civil servants.

Much will depend on the law on national communities, which are now called national minorities. Back in early 2020, they promised not to delay it, but the law has not yet been shown to the public, but only reported that it is being actively prepared. It should see the light of day in 2022.

Analysts are skeptical about the prospects for Russia's invasion of Ukraine, which were actively discussed at the end of last year. The fact that the movement of equipment near the Ukrainian border occurs openly, and not secretly, indicates that what is happening is a way of political pressure both on Ukraine and directly on the West. Russia is not so much interested in Ukraine as it claims its rights to be one of the guarantors of security on the European continent. The maneuvers with the equipment in the spring of 2021 have already worked: they forced Biden to call Putin and meet him in Geneva.

Already in January-February 2022, another meeting between Putin and Biden is planned. The first Russia-NATO meeting in 2.5 years is also expected. A month ago, Russia handed NATO a list of requirements, according to which the Alliance must respond with guarantees that it will stop expanding to the east.

In general, there are doubts that Ukraine in 2022 will gain significant influence on the international arena, since it is difficult to call diplomacy not only high-quality, but generally effective.

Zelensky will continue to fight for power

Zelenskiy will continue to do everything to maximize his influence. Taking into account the policy in the media sphere, which the president led in 2022, we will probably hear more than once from journalists of various publications that their media was blocked unfairly. Following the ban on channels from "Medvedchuk's orbit" may be "Poroshenko's channels." The channels "Dom", "Rada", "Channel 4", completely loyal to the president, will occupy more and more space on the air. Also, the information policy of the state may become tougher in relation to Internet resources. The West is likely to criticize Zelensky for harassing freedom of speech, but gently, as before, turning a blind eye to it.

Volodymyr Zelensky
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In addition to extrajudicial sanctions, in 2022 another mechanism will appear in power - the register of oligarchs so that new cases against political opponents of the president cannot be ruled out. Political scientist Volodymyr Volya predicts an acute political crisis that will peak in the fall.

The "law on oligarchs" will be the trigger for the crisis. If this law did not exist, the enemies would create it to destabilize Ukraine, "the political scientist says.

Also, the possibility of early presidential and parliamentary elections is still possible, the prospects of which were reported by analysts last year. Then it was either the fall of 2021 or the spring of 2022. An early presidential election for Zelensky is a titmouse in the form of 7.5 years of the rule instead of pie in the sky in the form of 10.

Related: Price of bread increases: Would bread factories avoid massive production cut?

Although immediately after the inauguration, the president's team was convinced that he was not at all responsible for the tariffs, today people think differently, because he gave the command to ensure the prices for utilities at the level of the last heating season. Since by the fall of 2022 there will be no possibility to set tariffs by directive and the president will have to take unpopular measures, his rating may sink to negative values. So the president has a better chance of being re-elected now.

Insiders speak about the prospect of early parliamentary elections in connection with the decreasing stability of the mono-majority. In 2021, Zelensky's mono-majority in parliament began to crumble, so that in the first half of the year, political scientists predict a parliamentary crisis that could last until autumn. Ukrainska Pravda, referring to its own sources, has already reported that the Servant of the People party may be renamed with the mention of Zelensky's name.

Early elections are, by the way, the issue that can be submitted to a referendum (in 2022 it is legally possible). So far, according to a poll by the Ukrainian Institute for the Future, Ukrainians' opinions on the elections are roughly divided in half.

Whatever the decision of the authorities regarding early elections, political scientist Ruslan Bortnik assumes that in order to reduce the negativity, Ukraine will again face personnel changes. Not only the government but also the President's Office, including its head Yermak, can be dismissed. Against the background of the Poroshenko case, which Prosecutor General Venediktova did not sign, she may also be fired. Thus, practically no one will remain of Zelensky's original team.

There is little hope that Zelenskiy will finally bring in professional managers capable of pragmatic and realistic management in 2022. So, unfortunately, there are few prospects for the growth of the well-being of Ukrainians in the coming year.

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