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Ukraine’s economy contracted by x.x% on the year in the first quarter of 2013. The gross domestic product (GDP) in current prices amounted to UAH 301.598bn in Q1. In q/q terms, the GDP grew by x.x%, which was predetermined by a seasonal factor. GDP per capita amounted to UAH 6,624, down by x.xx% y/y. The country’s economic growth slowed to x.x% in 2012 from x.x% in 2011. After first-quarter GDP data was released, most of the rating agencies and global financial institutions lowered their full-year GDP growth forecast for Ukraine. Standard & Poor's expects a GDP growth rate of x% under the optimistic scenario. Under the pessimistic scenario, the GDP growth in Ukraine in 2013 is forecast at x.x%.
Ernst & Young has worsened its GDP growth forecast to x.x%y/y in 2013. In 2014-2016, E&Y expects GDP growth to reach x% on condition that European markets recover. The European Bank for Reconstruction and Development (EBRD) cut its forecast for the second time this year and now expects a x.x% y/y decline in 2013 before the economy rebounds to a x.x% growth in 2014. The International Monetary Fund (IMF) forecasts a zero GDP growth in Ukraine this year and a growth of x.x% in 2014. Inflation may reach x.x% in 2013 accelerating to x.x% in 2014, the IMF said. The World Bank has maintained its GDP growth forecast for Ukraine at 1% in 2013. The World Bank believes that the high fiscal deficit, continuous current account deficit and high external debt remain the main challenges for Ukraine. In addition, the national currency de-facto peg to the dollar and declining foreign reserves also remain a concern for the authorities. Fitch's forecast assumes some further depreciation in the hryvnia to UAH 8.5/USD by end-2013 and UAH 9/USD by end-2014. Depreciation on this scale would be manageable for the financial system and the economy.
S&P said that Ukraine's ratings are constrained the political uncertainty, financial sector turmoil, as well as weak external liquidity. In particular, the agency believes that the government's strategy to secure foreign currency to meet its high external financing needs over the medium term remains dependent on favorable financing conditions in the capital markets. The ratings are supported by Ukraine's still relatively low, although rising, government debt burden and fairly diversified economy.
Fitch notes that Ukraine could strike a new deal with the IMF, thereby unlocking the necessary funds to refinance liabilities to the IMF. However, barring a further sharp deterioration in external financing conditions, Fitch no longer expects Ukraine to reach an IMF deal in 2013. In addition, Fitch pointed out that Ukraine runs a wide current account deficit of x% of GDP. The national bank depleted its reserves by xx% to barely two months' of current account payments in the year to end-May 2013 to support the hryvnia. The authorities have limited room to fight any renewed pressure on the currency, raising risks of sharp exchange rate depreciation. High dollarization and foreign-currency exposure makes government solvency, banks' balance sheets and the overall economy vulnerable to such an event.
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