Summary:

After a year of doom and gloom, Ukraine escaped 2020 in pretty good shape. The economy shrank by 4%, better than most of Europe and far better than the Ukraine forecasts of minus 7%.

Despite travel controls, Ukrainian workers sent home more money than ever – about $12bn – which more than covers the trade deficit, which also shrank thanks to rising iron prices. The prices of Ukraine’s major commodity exports – corn, wheat, iron – all strengthened.

Because of travel controls, Ukrainian tourists spent their money inside the country, boosting retail sales, and despite everything incomes rose in 2020 driven up by the tight labour market conditions.

China’s frenetic railroad and bridge building pushed up iron prices. Ukraine’s own road-building program saved construction and made the country a nicer place to live. With luck, economic recovery will continue in 2021 -- and we will be spared a repeat of the roller coaster drama of 2020.

Ukraine’s economic activity in the fourth quarter of last year was only down 1% y/y, far better than the forecast drop of 3%, Economy Minister Ihor Petrashko told reporters Tuesday at the Ukraine 30 Coronavirus: Challenges and Responses Forum in Kyiv.

Ukraine’s economy will rebound sharply to 10% growth y/y in the second quarter of 2021, breaking five successive quarters of decline, according to a Reuters poll of 12 Ukrainian analysts. The median forecast of analysts has the GDP shrinking by 0.5% y/y in January-March, but then growing by 10.2% in April-June.

The sharp rebound comes from a low base: in the second quarter of last year, strict coronavirus controls forced the economy to shrink by 11.4%. If the government does not impose more lockdowns, the analysts’ median forecast is 4% GDP growth for this year.

Ukraine’s trade deficit in goods and services shriveled last year to $255mn – 93% below the level of 2019, reports the State Statistics Service. The most dynamic factor was the 12.5% drop in imports of goods, to $59.3bn. Exports of good fell by a smaller amount, by 7.8%, to $59.04bn.

The country’s international reserves have risen to $29bn, which is about 4.4 months of import cover and its highest level since Viktor Yanukovych was ousted as president in 2014.

While the country starts 2021 in much better shape than many expected, there are still serious problems to over come. The International Monetary Fund (IMF) $5bn Stand By Agreement (SBA) remains suspended. Ukraine got one tranche of $2.1bn last summer and was due a second of $700mn, which never arrived. This year Kyiv was supposed to get another $2.2bn. However, as talks between Kyiv and the IMF have made little progress observers believe that Kyiv might persuade the IMF to hand over the $700mn, but even this is not sure.