World Economy

Ukraine Inflation to Reach 50%

Ukraine Inflation to Reach 50%Ukraine Inflation to Reach 50%

The Ukrainian economy is set to contract 12% this year, while inflation is forecast to reach 50.8%, according to the World Bank.

The main reasons for the slowing economy and rising inflation are the military conflict in eastern Ukraine and a fall in trade with Russia, RT reported.

According to Kiev’s statistical data, exports of Ukrainian goods to Russia fell by 55.6% in the first nine months of 2015. Exports to Russia now stand at $3.6 billion, compared to $8.1 billion in the same period last year. The import of goods from Russia fell by 47.9% to $5.5 billion.

Even so Russia remains Ukraine’s largest trading partner, accounting for 12.8% of its exports and 20% of imports. Ukraine’s second biggest export market is Turkey at 7.3%.

Ukraine has not been able to use preferential treatment from the EU under the Association Agreement that was supposed to cancel duty on Ukrainian products.

“To deliver goods to the EU Ukrainian businesses must obtain the appropriate certificates and it is a complicated procedure,” said Kiev-based economist Aleksandr Okhrimenko.

With more than 50% inflation, banks have practically stopped bankrolling the economy. The lending rate is about 30% per year in Ukrainian hryvnia. The national currency has lost 50% of its value in 2015, boosting inflation.

The World Bank estimates the Ukrainian economy will grow 1% in 2016, and inflation is projected to hit 23.4% next year. It expects Kiev’s external debt to reach 153% of GDP in 2015 and 134.2% in 2016.

In early October, the IMF mission in Ukraine also downgraded its forecast on GDP from 9% contraction to 11%. Kiev expects the economy to decline 8.9%.

Deputy governor at the National Bank of Ukraine, Vladyslav Rashkovan, said in September that in 2015 inflation would be 44-46%.

Again in September, Standard & Poor’s downgraded Ukraine’s credit rating from ‘CC’ to selective default ‘SD’ level after Kiev began restructuring its multibillion dollar debt and halted payment on a number of liabilities that will be restructured.

Ukraine is obliged to restructure the debt in order to get a $17.5 billion loan from the IMF. However, the deal could collapse, as Russia, one of Ukraine’s biggest creditors, is refusing to accept a haircut on the $3 billion due in December