Ukraine Country Report Apr18 - April, 2018

April 2, 2018

Ukraine’s economy is doing better and put in 2.5% in 2017, the State Statistics Service reported on March 21, after revising its growth estimate upwards.

Economic growth was driven by investment in 2017, which increased 18.2% y/y, and consumption, which accelerated to 7.8% y/y from 2.1% y/y in 2016.

Consumption was helped by a growth in incomes, which are now $300 per month, but still among the lowest in the region. This is driving economic migration and some 2mn Ukrainians are now working abroad. The amount of money they send home has soared and was up by $2bn to $9bn in 2017 on revised figures, making people one of the most important export products the country has. However, the fact that the most economical active worker are not in the country could hinder the broader recovery of the economy. The current growth is already still well below potential.

On the external trade front things are going less well with the contribution of net exports remaining negative with real export growth of 3.5% y/y (a decrease of 1.8% y/y in 2016) being outpaced by a 12.2% y/y rise in real imports (19.4% y/y in 2016), lifted by rising incomes. Ukraine industrial output is similar story, up by only 1.9% y/y growth in February, slowing from 3.6% y/y in the prior month, the State Statistics Service reported on March 22.

The bottom line is while the economy is recovering, the government has failed to come up with an effective programme of reform, nor implanted what they have on the table. The one exception is decentralisation as local governments have stepped up the challenge.

Politically the situation remains fraught and palpable reluctance by President Petro Poroshenko to even address the issue of corruption is overshadowing Kyiv’s relations with its allies in the west.

Now it is starting to affect Poroshenko’s popularity at home and there is a real chance that he will lose the 2019 presidential election which has introduced a new element of instability into the equation.

Poroshenko election ratings are collapsing, according to poll results released on March 19 by the Kyiv International Institute of Sociology. Of decided voters planning to vote in the March 2019 presidential elections, 24.6% said they will vote for pro-EU populist Yulia Tymoshenko, 15.5% for pro-EU populist Oleh Liashko, 12.5% for pro-EU reformer Anatoliy Grytsenko, and only 9.8% for Poroshenko. His support has steadily collapsed from 18.3% in September and 16.9% in December.

Poroshenko’s political party is faring even worse, according to the same poll. Of decided voters planning to vote in the October 2019 parliamentary elections, 22.5% said they will vote for Tymoshenko’s Fatherland party, 13.7% for Liashko’s Radical Party, 12.4% for the Russian-oriented Opposition Bloc, 10.3% for the Russian-oriented For Life party, 9.4% for Grytsenko’s Civic Position and only 6.6% for Poroshenko’s Solidarity party. It had 13.4% support in December.

78.8% Ukrainian don't support the government or president vs 1.7% that “fully” support its work, according to a poll conducted by the Sofia Center of Sociological Research released on March 21. Only 1.7% of those polled said they fully support the work of the president, somewhat support 14.2%, basically do not support 28.6% and completely do not support 50.2%. Another 5.3% found it difficult to answer the question. The survey was conducted from March 9 to March 16, 2018 in all regions of Ukraine under government control. Some 2,010 persons over the age of 18 took part. The polls margin of error does not exceed 2.2%.

If Poroshenko loses the elections either Tymoshenko will take over and pursue popularist policies that will not go down well with donors, or a pro-Russia party could come into power and shift Ukraine’s foreign policy back towards Moscow.

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