Ukraine Country Report Sep19 - September, 2019

September 6, 2019

The new government of Ukrainian president Volodymyr Zelenskiy was sworn in on August 29 and went straight to work. A tsunami of draft bills on every possible subject from reforming the railroads through boosting mortgage loans to killing corruption have been placed on the docket with short deadlines that will be impossible to meet.

Zelenskiy is clearly in a rush. With skyhigh popularity it is only matter of time before the honeymoon euphoria fades and so the young team is trying to get as many projects moving as possible while it still has the momentum of popular support behind it. The government has introduced circa 60 bills that must be submitted for review or enacted by the end of this year.

As detailed below, the government has already nixed parliamentary immunity and started dismantling the notoriously corrupt “economic crimes” units in the police and security services. These two measures by themselves will do more in the fight against corruption than former President Petro Poroshenko achieved in his four years on the job.

Zelenskiy has the wind at his back. Economic growth in second quarter came in at 4.6%, well ahead of expectations, due to a rapid increase in constriction activity. This is a major engine for growth and real estate investments seem to have taken off in anticipation of an improving business climate.

Consumer and wages are also rising and fuelling growth. Nominal wages were up 20% over the first half of this year while inflation was 10%. The rising spending is also a major economic driver.

In general the economy has stabilised and the government is calling for 5% pa growth in the short-term rising to 7% in the medium term targeting a 40% increase in the size of the economy over the next 5 years.

With the economic agenda sorted Zelenskiy also has to deal with Russia’s president Vladimir Putin and the war in the east. The new defence minister said that they want to halt hostilities in the next six months, which will be hard. However, French President Emmanuel Macron has recently become very active and clearly is making the Ukraine’s war with Russia his big international legacy issue. Coupled with Merkel they make a formidable pair but at the same time there has been a noticeable thaw in relations between Russia and Europe in the last months. The restart of the Normandy format meetings which Zelenskiy joins for the first time in September could breath some fresh life into the currently moribund Minsk II agreements.

Although Ukraine’s economy is recovering from its recent crisis, it has been growing well below potential and should have grown faster given the depth of its previous fall.

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