FT Article: "Economic Growth For Ukrainian Nation"

Excerpts from Economic Growth For Ukrainian Nation
Even with a moderate amount of reform, Ukraine can produce strong growth.
By Stefan Wagstyl, Financial Times.


Three years ago, cranes were a rare sight on the Kiev skyline.

Today, views across the city centre are criss-crossed with steel towers, cables and lifting gear. From early morning until dusk, builders are hammering away, erecting a new generation of commercial property: housing blocks, offices and retail centres.

Along Kreshchatyk, the city's premier street, shoppers stare into store windows filled with the latest fashions.

Kiev is booming, as are Donetsk and other big industrial centres. In smaller towns and villages, especially in western Ukraine, the picture is less positive. But overall, the economy is experiencing an unprecedented growth surge that began in 2000 and shows little sign of stopping.

The International Monetary Fund, which originally forecast a gross domestic product increase of 2.5 per cent for 2006, has recently raised its target to 6 per cent.

Consumer spending and real estate are powering the economy, fuelled by big increases in consumer credit - up 75 per cent so far this year.

Investment is also strong, as companies renew factories and add energy-saving installations. Exports are growing thanks to continuing solid global demand for steel, chemicals and other products of Ukraine's heavy industries.

The strong growth has allowed the government to increase public spending whilst maintaining fiscal stability. The budget deficit was just 1.8 per cent of GDP last year and the government is expected to achieve this year's target of 2.5 per cent.

Inflation has fallen from a mid-2005 peak of 15 per cent but remains high, running at an annual rate of about 9 per cent.

International investors see big potential. Foreign direct investment (most of them in real estate, food, retail and telecom) has soared since 2004, to a forecast $10bn in 2005-6 - more than the cumulative total for all preceding years. But there is still a long way to go before foreign investment levels match central Europe's.

The outlook for next year looks sound, with the IMF forecasting GDP growth of 4.5 per cent. The growth rate has surprised economists who generally predicted a sluggish year, with expansion hit by the 47 per cent rise in prices for gas imported from Russia from January 1.


Full article at FT.com