New Country Reports market report from Business Monitor International: "Ukraine Business Forecast Report Q2 2013"

Boston, MA -- (SBWire) -- 07/03/2013 --Core Views

In line with our view for Ukraine to enter a recession, real GDP contracted by 2.7% y-o-y in Q412, the second consecutive quarter of economic contraction. We expect real GDP to contract by 1.4% in 2013.

We maintain our expectations for growing external account imbalances to drive a devaluation of the hryvnia by end-2013.

We see political risks as likely to growth over the next 12 months. The imprisonment of former Prime Minister Yulia Tymoshenko has severely soured relations with the EU, while bilateral relations with Russia remain tense over the issue of Ukraine's gas imports.

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Major Forecast Changes:

We have downgraded our outlook for real GDP growth for 2013 and 2014, and now expect GDP to contract by 1.4% in 2013 and grow by just 1.0% in 2014. This change reflects our bearish outlook for global metallurgical markets next year, our expectations for hryvnia devaluation, and expectations of a retrenchment in government spending.

We have adjusted our expectations for Ukraine's fiscal deficit in 2013 and 2014, to 3.5% of GDP and 2.2% respectively. Weak revenues and imprudent social spending will drag the deficit higher this year and borrowing costs will remain high.

Key Risks To Outlook:

A sharper than expected devaluation could trigger major shockwaves through the domestic economy, particularly within the financial sector which has barely recovered from the 2008 devaluation. Existing capital buffers may prove insufficient to deal with a devaluation of 20% magnitude or greater.

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