1. Economic History Note
2. Economic Overview
1. Economic History Note
Ukraine’s economy has historically been determined by such factors as its advantageous geographic location at the crossroads between Europe and Asia, an abundance of the most fertile topsoil called chornozem, a rich base of natural resources and a productive labor force. Metals and minerals like coal, iron ore, gas, stone, sand and salt are abundant in Ukraine. Ukraine has 40 % of the world’s manganese ore, as well as the biggest deposits of ozocerite and sulfur in the world. The country also boasts the largest deposits of graphite in continental Europe. When Ukraine proclaimed independence in August 1991, it had one of the highest indicators for gross national income and also per capita industrial and agricultural production in the former USSR. Ukraine once represented about 5% of global industrial output: 10% of its cast iron production, 9% of steel, and 8% of mined coal. By the 1980s, however, the soviet-style economy began to show considerable unbalance, with an over-emphasis on heavy industries and machine building. More than 80% of industrial manufacturing did not have a closed production cycle, and output of consumer goods was extremely low. From 1991-1994, Ukraine’s economy went into collapse. This transition period led to GDP plunging 40.4% as hyperinflation in 1993 reached a record-high 10,256%. By 1994, the government began to define a strategy for economic reform and mechanisms to overcome the economy’s deep crisis. This stage led to lower inflation, macroeconomic stabilization and a halt in industrial decline. Direct foreign investments increased by 5.8 times in 1995–1998. A phase of economic stabilization and growth started in the first half of 1997, but was interrupted with the start of the Russian financial crisis in 1998. Growth slowly resumed in late 1999 with almost every economic indicator showing positive results. After an initial decade of decline, Ukraine’s GDP grew 33.1% over 2000–2003 and continued to grow 3-12% for five consecutive years. After the Orange Revolution in 2004, Ukraine entered a 3-year period of economic growth. The election of President Yushchenko was positively assessed by the international investors, who brought over US $31 billion in foreign direct investment into Ukrainian economy. 2005-2008 were the years of rapid economic growth in banking, construction, telecoms, retail, processing and other sectors.
Economic growth and the availability of mortgage lending spurred a boom in the construction industry and real estate development that led to an unprecedented rise property prices across Ukraine. Despite many hopes, the democratic leaders of the Orange Revolution did not manage to agree on main goals or a strategy of economic development for the country. 2005-2009 became years of political uncertainty, which grew considerably as the global crisis reached Ukraine in Q3 of 2008. In 2008, Ukraine’s economic growth abruptly slowed to 2.1% y-o-y, pointing to a sharp contraction in Q4. By the end of 2008, the country’s currency had lost nearly 60% of its value to the US dollar. Depreciation and the deep economic downturn undermined the stability of the banking sector. Fortunately, monetary and government officials began to actively address the weaknesses in the country’s banking system. In 2008, output of domestic machine-building products increased. But because of the crisis, sales volumes of engineering products for January-July 2009 in current prices amounted to only UAH 36.1 billion, or 51.5% less than in the same period of 2008. Nevertheless, profitability of engineering enterprises in January-June 2009 was 5.2%, which is better than the industrial average of 1.7%. During the pre-crisis years, exports of key engineering products steadily rose: by 52.7% in 2007 and 28.5% in...