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12 June, 2013 15:00   ▪  

World Bank: the monetary policy in Ukraine remains restricted by its de-facto currency peg to the dollar

Growth in Ukraine is to remain weak at 1.0 percent in 2013, up from 0.2 percent in 2012, World Bank predicts in its report “Global Economic Prospects. Less volatile, but lesser growth”.

“Growth in developing Central and Eastern Europe is expected increase only slightly to 1.9 percent in 2013 from 1.5 percent as most of the factors that weighed down the growth last year continue to hinder the economic growth this year, but less intensively in some countries. Monetary policy remains accommodative in most countries, while the pace of fiscal consolidation has eased in Romania, Latvia and Lithuania, reducing the on overall growth. However, major fiscal adjustments are still needed in several others, including Serbia and Montenegro,” the report states.

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“Similarly, the monetary policy in Ukraine remains restricted by its de-facto currency peg to the dollar. Maintaining the peg might be increasingly challenging with economic contraction.

Growth in Ukraine is forecast to remain weak at 1.0 percent in 2013, up from 0.2 percent in 2012. The increase will be supported by robust consumer demand with increasing retail sales, while industry continues to contract and global steel prices remain weak. The overall outlook remains challenging, with a high fiscal deficit, persistent current account deficit, high external debt, and the currencies de-facto peg to the dollar and declining foreign reserves all sources of concern. Reforms that may stem from ongoing discussions with the EU/IMF and Russia will be crucial factors determining the shape of growth going forward.”

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“The early months of 2013 suggest that economic activity may have bottomed out for the Eastern European countries. While first quarter GDP data is available for only a few countries, they point to a rebound in economic activity. In Lithuania, for example, the real GDP grew 3.5 percent (y/y saar) in 2013Q1, up from 3 percent in the 2012Q4. The acceleration was boosted by strong export growth at 14.9 percent (3m/3m saar), which helped offset slowing retail sales. In Serbia, GDP growth rebounded strongly to about 1.7 percent (y/y saar) in the first quarter, mainly due to Fiat production, exports and base effects. Ukraine’s growth remained negative at -0.7 percent (y/y saar), but the pace of decline was significantly slower than the 2.5 percent (y/y saar) fall in the final quarter of 2012, suggesting that output picked up in the fourth quarter,” claims the report. 


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