Question

Economic Analysis of Ukraine ( Economic effects, changes in yhe market, competition, supply and demand the big 4 issues)

Economic comparison to the USA

Chart and analysis (include the most inportant trade/economic chart/ graph/ table and explain it )

Answer 1

MAJOR MACRO ECONOMIC INDICATORS OF UKRAINE

	2017	2018	2019 (e)	2020 (f)
GDP growth (%)	2.5	3.3	3.3	3.5
Inflation (yearly average, %)	14.4	11.9	8.5	6.5
Budget balance (% GDP)	-2.2	-2.2	-2.3	-2.3
Current account balance (% GDP)	-2.2	-3.3	-3.0	-3.3
Public debt (% GDP)	71.6	60.2	52.0	48.0

(e): Estimate. (f): Forecast.

STRENGTHS

• Strategic position in Europe: transit point for 40% of Russian gas shipments to the EU
• Association and Free Trade Agreement with the European Union (2016), enabling a reorientation of foreign trade
• Significant potential in agriculture, with 55% arable land (wheat, maize, barley, rapeseed, sunflower, beet, soybeans), and in metallurgy (iron)
• Skilled and low-cost labour force
• Rigorous fiscal and monetary policy
• Low debt levels among economic participants (except the State)
• International financial and political support although conditional on reforms

WEAKNESSES

• Conflict with Russia and Russian-speaking populations in the Donbass region, affecting territorial integrity and preventing EU entry, but reopening of negotiations in “Normandy” format
• Business environment marred by corruption (notably in the justice system), oligarchy and monopolies, weak property rights, a lack of competition and inefficient public services
• Low economic diversification; sensitivity to weather and commodity prices
• Declining demographics; regional inequalities featuring poverty and the informal sector
• Credit constrained by doubtful loans (49%) and high real interest rates
• Managed float of the hryvnya; continued restrictions on capital movements

Firm growth based on consumption
As in 2019, activity will be driven primarily by household consumption (3/4 of GDP). Against a backdrop of emigration and a shortage of skilled labour, but also because of a continued (albeit smaller) increase in the minimum wage, wages will continue to rise. Households will also benefit from expatriate remittances, which make up 10% of their income. An estimated 5 million Ukrainians, or one-quarter of the labour force, work abroad, mainly in Poland, but also in Hungary, the Czech Republic and other countries. Inflation may be lower due to the easing of energy and food prices linked to the decline in world prices, while the hryvnya is expected to be resilient. Consumption will again benefit trade and freight transport. Investment is expected to grow again, but its GDP share (17%) is stagnating due to the conflict with Russia, the poor business climate and credit, which is constrained by high cost and the amount of impaired loans (49% of outstanding loans, although 90% covered by provisions). Despite monetary policy easing in 2019, with the key rate reduced to 15.5%, the average interest rate on hryvnya loans was 20.6% in October 2019 compared with 4% for those in foreign currencies, which still make up 40% of the outstanding amount, despite a decrease in their distribution. The contribution of trade is set to remain negative. Exports will continue to be affected by low prices for agricultural products (40% of total exports), iron and steel (25%) caused by sluggish global demand. However, this price effect should be partially offset by an upturn in shipments due to a further sharp increase in harvests for the 2019/2020 season that will benefit agriculture (12% of GDP). Conversely, strong domestic demand will drive imports, particularly of consumer goods and machinery.

Comparison with US

UKRAINE UNITED STATES

Products	grain, sugar beets, sunflower seeds, vegetables; beef, milk	wheat, corn, other grains, fruits, vegetables, cotton; beef, pork, poultry, dairy products; fish; forest products
Expenditures	$63.37 billion Ranked 4th.	$3.54 trillion Ranked 1st. 56 times more than Ukraine
Revenues	$55.74 billion Ranked 51st.	$2.45 trillion Ranked 1st. 44 times more than Ukraine
Economic freedom	46.3 Ranked 160th.	76 Ranked 10th. 64% more than Ukraine
Overview	After Russia, the Ukrainian republic was the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR. Shortly after independence in August 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% of the 1991 level. Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. Ukraine depends on imports to meet about three-fourths of its annual oil and natural gas requirements and 100% of its nuclear fuel needs. After a two-week dispute that saw gas supplies cutoff to Europe, Ukraine agreed to 10-year gas supply and transit contracts with Russia in January 2009 that brought gas prices to "world" levels. The strict terms of the contracts have further hobbled Ukraine's cash-strapped state gas company, Naftohaz. Outside institutions - particularly the IMF - have encouraged Ukraine to quicken the pace and scope of reforms to foster economic growth. Ukrainian Government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large shadow economy, but more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework. Ukraine's economy was buoyant despite political turmoil between the prime minister and president until mid-2008. Real GDP growth exceeded 7% in 2006-07, fueled by high global prices for steel - Ukraine's top export - and by strong domestic consumption, spurred by rising pensions and wages. A drop in steel prices and Ukraine's exposure to the global financial crisis due to aggressive foreign borrowing lowered growth in 2008. Ukraine reached an agreement with the IMF for a $16.4 billion Stand-By Arrangement in November 2008 to deal with the economic crisis, but the program quickly stalled due to the Ukrainian Government's lack of progress in implementing reforms. The economy contracted nearly 15% in 2009, among the worst economic performances in the world. In April 2010, Ukraine negotiated a price discount on Russian gas imports in exchange for extending Russia's lease on its naval base in Crimea. In August 2010, Ukraine, under the YANUKOVYCH Administration, reached a new agreement with the IMF for a $15.1 billion Stand-By Agreement. Economic growth resumed in 2010 and 2011, buoyed by exports. After initial disbursements, the IMF program stalled in early 2011 due to the Ukrainian Government's lack of progress in implementing key gas sector reforms, namely gas tariff increases. Economic growth slowed in the second half of 2012 with Ukraine finishing the year in technical recession following two consecutive quarters of negative growth.	The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $49,800. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households. Since 1996, dividends and capital gains have grown faster than wages or any other category of after-tax income. Imported oil accounts for nearly 55% of US consumption. Crude oil prices doubled between 2001 and 2006, the year home prices peaked; higher gasoline prices ate into consumers' budgets and many individuals fell behind in their mortgage payments. Oil prices climbed another 50% between 2006 and 2008, and bank foreclosures more than doubled in the same period. Besides dampening the housing market, soaring oil prices caused a drop in the value of the dollar and a deterioration in the US merchandise trade deficit, which peaked at $840 billion in 2008. The sub-prime mortgage crisis, falling home prices, investment bank failures, tight credit, and the global economic downturn pushed the United States into a recession by mid-2008. GDP contracted until the third quarter of 2009, making this the deepest and longest downturn since the Great Depression. To help stabilize financial markets, in October 2008 the US Congress established a $700 billion Troubled Asset Relief Program (TARP). The government used some of these funds to purchase equity in US banks and industrial corporations, much of which had been returned to the government by early 2011. In January 2009 the US Congress passed and President Barack OBAMA signed a bill providing an additional $787 billion fiscal stimulus to be used over 10 years - two-thirds on additional spending and one-third on tax cuts - to create jobs and to help the economy recover. In 2010 and 2011, the federal budget deficit reached nearly 9% of GDP. In 2012 the federal government reduced the growth of spending and the deficit shrank to 7.6% of GDP. Wars in Iraq and Afghanistan required major shifts in national resources from civilian to military purposes and contributed to the growth of the budget deficit and public debt. Through 2011, the direct costs of the wars totaled nearly $900 billion, according to US government figures. US revenues from taxes and other sources are lower, as a percentage of GDP, than those of most other countries. In March 2010, President OBAMA signed into law the Patient Protection and Affordable Care Act, a health insurance reform that was designed to extend coverage to an additional 32 million American citizens by 2016, through private health insurance for the general population and Medicaid for the impoverished. Total spending on health care - public plus private - rose from 9.0% of GDP in 1980 to 17.9% in 2010. In July 2010, the president signed the DODD-FRANK Wall Street Reform and Consumer Protection Act, a law designed to promote financial stability by protecting consumers from financial abuses, ending taxpayer bailouts of financial firms, dealing with troubled banks that are "too big to fail," and improving accountability and transparency in the financial system - in particular, by requiring certain financial derivatives to be traded in markets that are subject to government regulation and oversight. In December 2012, the Federal Reserve Board announced plans to purchase $85 billion per month of mortgage-backed and Treasury securities in an effort to hold down long-term interest rates, and to keep short term rates near zero until unemployment drops to 6.5% from the December rate of 7.8%, or until inflation rises above 2.5%. Long-term problems include stagnation of wages for lower-income families, inadequate investment in deteriorating infrastructure, rapidly rising medical and pension costs of an aging population, energy shortages, and sizable current account and budget deficits - including significant budget shortages for state governments.
Exchange rates	hryvnia (UAH) per US dollar -<br />7.99 (2012 est.)	<strong>British pounds per US dollar: </strong>0.6324 (2012 est.), 0.624 (2011 est.), 0.6472 (2010), 0.6175 (2009), 0.5302 (2008)<br /><strong>Canadian dollars per US dollar:</strong> (2012 est.), 1.001 (2012 est.), 0.9895 (2011 est), 1.0302 (2010 est.), 1.1431 (2009), 1.0364 (2008)<br /><strong>Chinese yuan per US dollar:</strong> (2011 est.), 6.311 (2012 est.)<strong>euros per US dollar:</strong> 0.7838 (2012 est.), <strong>Japanese yen per US dollar:</strong> 79.42 (2012 est.)
Commodities	ferrous and nonferrous metals, fuel and petroleum products, chemicals, machinery and transport equipment, food products	agricultural products (soybeans, fruit, corn) 9.2%, industrial supplies (organic chemicals) 26.8%, capital goods (transistors, aircraft, motor vehicle parts, computers, telecommunications equipment) 49.0%, consumer goods (automobiles, medicines) 15.0%
Main exports	Military equipment, metals, pipes, machinery, petroleum products, textiles, agricultural products	Computers and electrical machinery, vehicles, chemical products, food and live animals, military equipment and aircraft
Fiscal year	calendar year	1
Agriculture	9.5% Ranked 93th. 9 times more than United States	1.1% Ranked 194th.
Industry	31.4% Ranked 71st. 64% more than United States	19.2% Ranked 161st

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