Recently, the National Bank of Ukraine spoke about the state of the Ukrainian economy in the first quarter of 2014. As it turned out, Ukrainian enterprises suffered huge losses, which grew more than 5 times compared to the same period last year. At the same time, the gross profit of enterprises in Ukraine grew a little more than 2 times. Thus, the negative balance amounted to approximately 128,5 million hryvnia.
Representatives of the National Bank explain that such indicators are related to the devaluation of the national currency at the beginning of the current year.
In addition to the losses of Ukrainian enterprises, analysts noted a certain decrease in investment activity of banks and a decrease in the volume of state financing. As a result, all these factors caused a sharp drop in capital investment by 23 percent in the first quarter of this year. At the same time, in the investment structure, the share of budget funds decreased by 2 percent (3,1% in the first quarter of 2013 of the year against 1,1% for the same period of 2014). In the structure of bank loans, the share of budget funds decreased from 25 to 8,7%.
Despite these indicators, the Ukrainian National Bank is very optimistic, saying that it expects an improvement in terms of increasing investment activity and an improvement in the financial performance of enterprises by the end of this year. The ministry believes that this should happen due to the stabilization of the political situation in the country, the growth of external demand, as well as structural reforms.
According to experts, the stabilization of the situation in the country will depend on the new government. For the time being, it is not necessary to say that the political situation is a bit weakened, since in the south-eastern regions military clashes continue, leading to new victims.
What is meant by the growth in external demand is not entirely clear, since, according to stockbrokers, demand from Russia for obvious reasons is unlikely, and it is naive to expect high consumer demand for Ukrainian goods from the European Union at the moment. Therefore, we can assume that the National Bank of Ukraine hopes to find some sort of compromise solution that will satisfy all parties.
Based on economic laws, structural reforms, even if they start now, will not give a quick effect. And real dividends will be available only in a few years, and then subject to the effectiveness of the reforms.
An analysis of the situation shows that today the Ukrainian industry is going through hard times. The situation was a little better last year. Speaking objectively, Ukrainian industrial production has been declining over the past year and a half, and in the first four months of 2014, the rate of reduction has increased to 5,3 percent. In March, the growth of production was noted only in a few industries, in particular, the production of computers and pharmaceuticals, but these industries play such an insignificant role in the Ukrainian economy that they are unable to really influence the macro-situation.
If we talk about the main sectors of Ukrainian industry, it should be noted that the situation in them is also gradually deteriorating. In the spring, information began to appear that some chemical and metallurgical enterprises and plants, as well as coal mines, stopped working. Production in these industries continued to fall even at relatively low gas prices (in the first few months, Ukraine paid only $ 268,5 dollars for Russian gas). It is quite obvious that as a result of the increase in prices for blue fuel the situation will only get worse.
The banking system is also not so smooth. Based on the statistical data published in the press, for the first six months, Ukrainian banks suffered significant losses, which amounted to approximately 900 million dollars (about 10,5 billion hryvnia). During the same period last year, banks made a profit of 90 million dollars.
11 of Ukrainian banks is currently on the verge of bankruptcy, including Brokbusinessbank, Forum, AvtoKrazBank, Interbank, Starokievsky Bank. If you do not take into account these institutions, the remaining banks for six months received a profit in the amount of 3,7 billion hryvnia. However, the list of bankrupts can be replenished at any time, because from 37 banks only 9 passed the preliminary stress test of the NBU. According to experts, all Ukrainian banks currently need additional capitalization, but shareholders have no money. Rely on government assistance and investments of international financial organizations can only be expected by early autumn.
According to experts, the problems in the banking sector were quite expected, if we take into account the difficult situation in the Ukrainian economy, which was actually on the verge of survival. Military clashes in the south-east of the country only complicated the situation. The causes of these problems are quite obvious - the devaluation of the Ukrainian national currency, inflation, the fall in the standard of living of the population, the decline in real incomes.
The banking sector suffered primarily because in just a few months 2014 of the year more than 86 billion hryvnias (19,2 percent of deposits) were withdrawn from the Ukrainian banking system. Decline in household incomes led to a drop in demand for loans. In addition, the share of overdue loans has increased. Another part of the Ukrainian banks suffered from the loss of branches in the Crimea.
As a result, Ukrainian banks are experiencing a liquidity deficit of about 6-8 billions of dollars. A loss in 900 million for Ukrainian banks is too much, even considering the dramatic situation.
According to experts, as long as the situation in the country does not stabilize, and banks do not regain the trust of their customers, the Ukrainian banking system will be on the verge of default, it is waiting for an increase in losses, a reduction in the number of banks, and a liquidity deficit. Currently, banks need the support of the NBU, but it does not have the necessary funds. Therefore, the situation in the banking sector in 2014 will be critical, and only in 2016, the situation will improve slightly, and only then if the Ukrainian leadership can find a certain compromise in relations with Russia and the European Union, and peace prevails in Donbas.
If we talk about transportation, it should be noted that they are one of the main indicators of business activity. If they fall, this indicates a negative economic situation. Cargo transportation in Ukraine decreased by one and a half times. The Ukrainian government is trying to influence the situation. Recently, the Cabinet of Ministers approved the financial plan of Ukrzaliznytsia for the current year. The document laid the decline in rail freight at a level above the fall in GDP (GDP decline is planned at the level of 5 percent).
However, these are very optimistic forecasts. Obviously, the drop in freight traffic between Ukraine and Russia, or even the complete suspension of the transit of goods from Ukraine to Russia and back, was not taken into account. And this is exactly what should be expected, since the Ukrainian head of state P.Poroshenko signed the Association Agreement with the European Union, which provides for duty-free import of European goods into the territory of Ukraine.
According to experts, the Ukrainian railway system will suffer much more than the Russian, because thanks to cargo transportation, Ukrainian Railways receive up to 80 percent of revenues, while in Russia this figure does not exceed 30 percent.
The passenger traffic between Ukraine and Russia has also decreased. According to the Russian side, in June it fell to 50, and in some areas to 70 percent. Another significant problem was added to the decline in freight and passenger traffic - in the eastern regions there were about 10 explosions on the railway, and in addition, railway bridges were undermined in Zaporizhia and Kharkiv regions.
Thus, we can say that in Ukraine there is a serious economic and political crisis. The Ukrainian economy has several development options - either moderate (taking into account all negative factors) or negative (with the development of the Ukrainian-Russian conflict). A positive scenario, according to some experts, in this situation simply does not exist. According to economists, in order to cover the budget deficit in the first case, the country needs about 30 billion dollars. For the second case, this amount reaches 50 billion.
For the period of 2015-2018, to ensure the stability of the Ukrainian economy, 85 needs billions of dollars in the development of a moderate scenario. Experts do not even consider the negative scenario, since it automatically means the collapse of the economy. And the worst thing is that such colossal funds are needed only for the fact that Ukraine kept afloat. And in order for the Ukrainian economy to start to develop at least a little, even more substantial funds will be needed - about 190 billion dollars for capitalizing the economy and another 300 billion - to overcome the structural imbalances that have accumulated over the years of independence.
And if we take into account that in the event of a reduction in trade and economic relations between Ukraine and Russia, the Ukrainian side will still lose about 33 billions of dollars annually, then the European Union will have to spend a lot of money to keep Ukraine afloat.
Experts are confident that the EU will not allow Ukraine to default, but it will not make it rich either. In addition, you should not hope that immediately after the signing of the Association Agreement with the EU, the state of the Ukrainian economy will change for the better. In the coming years there will not be any major changes, even the agreement itself states that the transition period can take up to 10 years. During this time, the government needs to pass many laws, change standards. This is a promising contract, so you need to start working now.