Business Monitor International


Ukraine Business Forecast Report

Published 16 December 2014 | Quarterly

  • 49 pages
  • Instant access to your report online and PDF format through your account library
  • Includes 3 free updated quarterly reports
 
$1,195.00
Ukraine Business Forecast Report

Core Views:

  • Ukraine's economy is headed for a major recession which it is unlikely to emerge from until 2016. Ongoing fighting between the Ukrainian army and pro-Russia forces in the east, and the persistent threat of a military invasion by Russia, raises huge challenges to our ability to forecast the economic outlook over the coming quarters to any meaningful degree of confidence.

  • EU/IMF financing package will require reforms, including: FX liberalisation (although this is likely to be implemented in stages), partial removal of gas subsidies and potentially pension reform.

  • Despite the new IMF package, Ukraine's fiscal position remains poor and is likely to deteriorate over the coming quarters. FX shocks, extended fighting and the growing risk of a banking sector bailout all pose significant challenges to the sovereign debt profile. Ultimately, we believe that Ukraine's debt load is likely to become unsustainable, necessitating a debt restructuring further down the line.

  • Putin will be happy with Crimea for now, and will not push military intervention into North East of Ukraine. Ethnic divisions in NE Ukraine not nearly as clear cut as Crimea, and it would benefit Putin to retain a large ethnic Russian influence in mainland Ukraine (enabling him to maintain a direct political stake in Ukrainian affairs).

Major Forecast Changes:

  • We have revised up our 2014 real GDP estimate slightly, although we emphasize this is because we have adjusted our GDP forecasts to exclude Crimea in order to keep our statistics consistent with the national statistical agency's decision. The deeper than expected devaluation will also reduce imports more than we initially forecast, reducing the drag from weaker exports. We estimate real GDP will contract by 5.3% in 2014, and forecast a further contraction of 5.2% in 2015.

Key Risks To Outlook:

  • A sharper than expected devaluation could trigger major shockwaves through the domestic economy, particularly within the financial...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Conflict To Escalate; No Early Lifting Of Russia Sanctions
8
The fighting in Eastern Ukraine will escalate in the near term, with a high risk of new fronts opening up, but the endgame remains
The fighting in Eastern Ukraine will escalate in the near term, with a high risk of new fronts opening up, but the endgame remains
a stalemated conflict
Given current security dynamics, there will be no lifting of Western sanctions on Russia until well into 2015 at
best
table: Politic al Over view
8
Foreign Policy
9
High Risks, If US Arms Kiev's Forces
9
Any US provision of lethal equipment to Ukraine would risk escalating the conflict substantially
As such, Washington will adopt a 'wait
and see' approach in the near term, and calibrate its policy according to Russia's next steps
Long-Term Political Outlook
11
Eastern Separatism To Persist, While Myriad Other Risks Loom
11
Ukraine will emerge weaker from the 2014 conflict, losing de facto control of the separatist East to pro-Moscow forces
Even without
the conflict, President Petro Poroshenko faces colossal challenges in averting economic crisis, tackling corruption, and reforming the
the conflict, President Petro Poroshenko faces colossal challenges in averting economic crisis, tackling corruption, and reforming the
economy
Chapter 2: Economic Outlook
15
SWOT Analysis
15
BMI Economic Risk Index
15
Economic Activity I
16
Recession Until 2016
16
Ukraine's economy will remain in a deep recession throughout 2015 as the conflict in the east rages on
Soaring inflation, a crippled
banking sector and severely weakened currency will keep the economy close to the brink of collapse over the coming quarters
table: GDP By Expenditure
16
Economic Activity II
18
Ukraine's Energy Predicament To Increase Russia's Sway
18
While the gas dispute between Ukraine and Russia has been a major issue in the Ukraine crisis, we draw attention to other aspects of
While the gas dispute between Ukraine and Russia has been a major issue in the Ukraine crisis, we draw attention to other aspects of
Ukraine's energy predicament, such as coal and electricity shortages, which, in our view, will increase Russia's economic leverage over
Ukraine's energy predicament, such as coal and electricity shortages, which, in our view, will increase Russia's economic leverage over
Kiev
Fiscal Policy
19
Credit Event Drawing Closer
19
Ukraine is likely to experience a credit event in the coming quarters unless further capital injections are provided
Even with additional
funding, the devaluation of the hryvnia has severely undermined the sustainability of the debt load
table: Fiscal Policy
19
Exchange Rate Policy
21
UAH: On The Brink Of Collapse
21
The hryvnia will remain under intense pressure for the foreseeable future, and the authorities' ability to defend the exchange rate is
The hryvnia will remain under intense pressure for the foreseeable future, and the authorities' ability to defend the exchange rate is
highly limited
Until a lasting ceasefire can be reached in eastern Ukraine, the hryvnia will remain vulnerable to deeper downside shocks
for the foreseeable future
table: Currency Forecast
21
Chapter 3: 10-Year Forecast
23
The Ukrainian Economy To 2023
23
Colossal Structural Reform Needed To See Through The Decade
23
Having failed thus far to break free from its dependence on cheap energy and a low-value added export base, Ukraine has arguably
Having failed thus far to break free from its dependence on cheap energy and a low-value added export base, Ukraine has arguably
squandered the economic windfall experienced over the last ten years
While there is still enormous unrealised potential in terms of
political reform and economic catch up, without institutional and economic reform, Ukraine's current economic growth model will prove
political reform and economic catch up, without institutional and economic reform, Ukraine's current economic growth model will prove
unsustainable over the coming decade
table: Long-Term Macr oec onomic Forec asts
23
Chapter 4: Operational Risk
27
Operational Risk
28
table: Operational Risk
28
Transport Network
29
table: Emergi ng Eur ope - Transport Network Risks
30
Economic Openness
34
table: Emergi ng Eur ope - Economic Opennes
35
table: Top 5 Trade Partners - Product Imports (USDmn unles otherwise stated )
36
table: Top 5 Products Exported (USDmn unles otherwise stated )
37
Chapter 5: Key Sectors
39
Infrastructure
39
table: Construction And Infrastructure Industry Data
40
Table: Construction And Infrastructure Industry Data
41
Oil & Gas
42
table: Oil Production
43
table: Oil Production
43
table: Gas Production
44
table: Gas Production
44
Other Key Sectors
47
Table: Pharma Sector Key Indic ators
47
Table: Telecoms Sector Key Indic ators
47
Table: Defence and Security Sector Key Indicators
47
Table: Food and Drink Sector Key Indicators
48
Table: Autos Sector Key Indicators
48
Table: Freight Key Indicators
48
Chapter 6: BMI Global Assumptions
49
Global Outlook
49
Warning Signs Growing
49
Table: Global Assumptions
49
Table: Developed States , Real GDP Growth, %
50
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
50
Table: Emerging Markets , Real GDP Growth , %
51

The Ukraine Business Forecast Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Ukraine and is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Ukraine's economic, political and financial prospects through end-2018, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Ukraine's economic and industry growth through end-2018.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the business environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Ukraine's country risks against regional peers using BMI's country comparative Risk Rankings system.
  • Evaluate external threats to doing business in Ukraine, including currency volatility, the commodity price boom and protectionist policies.

The Ukraine Business Forecast Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Business Environment and Key Sector Outlook.

Economic Outlook:

How will the Ukraine economic policy-making and performance impact on corporate profitability over 2014-2018?

BMI provides our fully independent 5-year forecasts for Ukraine through end-2018 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Ukraine Business Forecast Report features BMI's forecasts with supporting analysis for 2014 through to end-2018, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Rankings system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector exposure).
  • Global Assumptions - forecasts for each year to end-2018 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Ukraine and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Ukraine, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Ukraine over the next 5-years?

BMI's Ukraine country Risk Rankings evaluate the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Ukraine Market - Political Strengths, Weaknesses, Opportunities and Threats facing Ukraine.
  • Political Stability and Risk Assessment - BMI's Risk Rankings assess explicit short- and long-term risks to political stability; latest ankings, rankings and trends for Ukraine's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.

Key Benefits

  • Benchmark Ukraine's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Business Environment

Business Environment Risk Rankings with SWOT Analysis - Business Environment Risk Rankings for Ukraine, benchmarked against rankings for regional neighbours.

Country Competitiveness - Competitiveness of Ukraine's business operating environment in supporting corporate growth and profitability, compared with regional neighbours.

Business Environment Contents

  • Domestic Environment - Transparency, cronyism and corruption; labour market flexibility; corporate tax burden; interest rate levels; sophistication of banking sector and stock market; levels of business confidence; infrastructure and IT.
  • Foreign Direct Investment - Analysis of foreign investment regime; foreign ownership laws; attractiveness of business environment to foreign investors.
  • Foreign Trade - Analysis of trading environment, government trade policy, liberalisation measures, tariffs and membership of trade areas.

Key Benefits

  • Assess your company's evolving exposure to country specific operational and business risks, using BMI's in-depth analysis of the legal and regulatory business environment.
  • Understand your market's comparative strengths and weaknesses in the key areas of commercial infrastructure and business institutions, using BMI's proprietary global Business Environment Risk Rankings.

Key Sector Outlook

Which industry sectors in Ukraine will grow fastest, and where are the major investment opportunities in the market?

BMI's identifies investment opportunities in Ukraine's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry with developments over 2009-2013, covering major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2014-2018, using BMI's proprietary industry modeling technique, which incorporates all key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across, and within, each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express