Growing again, but crises remain unresolved


HIGH RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

GDP USD112.154bn (World ranking 60, World Bank 2017)15)
Population 44.83mn (World ranking 31, World Bank 2017)
Form of state Republic
Head of state Petro POROCHENKO (President)
Next elections 2019, presidential and legislative
  • Fertile black soil
  • Willingness to support from International Financial Institutions and bilateral donors
  • Severe conflicts with separatists in east Ukraine ...
  • ... and with Russia (which supports the separatists)
  • History of political instability and government inefficiency; weak constitutional framework
  • High economic dependence on Russia (major trading partner, in particular natural gas supplier)
  • Poor economic policy track record
  • Continued high exchange rate risk
  • Low FX reserves, implying significant transfer and convertibility risk
  • High public debt, of which two thirds in foreign exchange
  • Very high external debt
  • A generally weak business environment

While the severe political crisis goes on...

Ukraine has been in economic crisis since 2011 and in recession from mid-2012 to 2015. In 2014-2015, the violent conflict between government forces and separatists in east Ukraine and the related serious dispute with Russia (which annexed Crimea in March 2014 and supports the separatists) drastically aggravated the economic crisis. After the second ceasefire agreement from February 2015, the fight­ing in the east eventually slowed down some­what in  2016, however, in the past few months it has re-escalated. After two years of deep recession (-6.6% in 2014 and -9.8%) the economy returned to modest growth in 2016, estimated at +1.5%. 

...the recession has ended, at least,...

Details of Q4 and full-year 2016 GDP are not availa­ble as yet, but the breakdown of Q1-Q3 shows that domestic demand drove the recovery. Consumer spending grew by an average +2.4% y/y (after dropping by -20.4% in full-year 2015), public spending by +0.2% y/y (+1.7% in 2015) and fixed investment rebounded by +15.5% y/y (-9.2% in 2015). Exports continued to contract by -5.3% y/y

(-13.2% in 2015) while imports edged up by +2.2% y/y (-17.9% in 2015) so that net exports still made a large negative contribution to growth in Q1-Q3.

Euler Hermes expects the gradual recovery to con­tinue and GDP to increase by +2% in 2017. Still, the annual level of GDP in 2017 will be around -13% below the level in 2012 and even -22% below the level in 2008 (i.e. before the global financial crisis which also hit Ukraine hard). Moreover, downside risks to our forecast prevail, including renewed intensification of political instability and disruptions to international funding programs.

...but exchange rate risk remains high...

Since the National Bank of Ukraine (NBU; the central bank) abandoned the peg of the UAH to the USD (at 1:8) in February 2014, the currency has substantially lost in value. One year later, it hit a record low of 1:30 against the USD in February 2015 as the NBU ceased FX interventions because its FX reserves had fallen dramatically. After recovering from that overshooting, the UAH has continued to fall since mid-2015, in part because of a lasting disruption in the IMF lending program. Summarizing, after losing half of its value against the USD in 2014, another third in 2015 and -12% in 2016, the UAH is standing at around USD1:UAH27 at the time of writing, i.e. it has lost -71% since end-2013. Although the gap between the official exchange rate and the middle rate on the FX cash market has narrowed during 2016, Euler Hermes expects downward pressures on the currency and the depreciation to continue in 2017, albeit at a more moderate pace (around -10%), with bouts of volatility being highly likely. 

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Russia 13%
20% Russia
Turkey 7%
10% Germany
China 7%
10% China
Egypt 5%
6% Belarus
Poland 5%
6% Poland

Trade structure by product

(% of total)

Exports Rank Imports
Agricultural products; foodstuff 38%
32% Mineral products (incl. oil, gas)
Metals & metal producs 25%
16% Machinery
Machinery 10%
13% Chemicals & pharmaceuticals
Mineral products (incl. oil, gas) 8%
9% Agricultural products; foodstuff
Chemicals & pharmaceuticals 6%
7% Plastics & rubber

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings