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A sustainable exit? Ukraine’s economy returns to growth

November 17, 2015

According to the Ukrainian State Statistics Office, after 18 months of recession, an anemic but nonetheless welcome return to growth has arrived.  GDP in the quarter July – September saw growth of 0.7%.  The annual rate of economic decline slowing from 17.2% in the 1st quarter to 7% in the 3rd.

Most annalists predicting an economic growth rate of between 1 – 2.5% for 2016.  Meager as that may appear, better a sustainable 2% than an unsustainable larger figure.

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The question therefore, is whether the 1 – 2.5% estimates (and all those in between) are in fact sustainable?

Whilst the war in eastern Ukraine quietly simmers, with deaths counted in single figures each day rather than in tens or hundreds when peak hostilities were in full flow, that will have had an impact upon a return to growth.  Small increases in domestic consumption, exports and investment responsible.

One question of sustainability is therefore whether continuing hostilities in the east of the nation can be kept at a simmer rather than a return to boiling over.

Yet another question of growth sustainability is that of investment in 2016, and that will in no uncertain terms be dictated by the willingness of the Verkhovna Rada to start passing more reform orientated, market opening legislation, together with visible and tangible institutional efforts to implement anti-corruption legislation without any (or at least much) political interference.

The sustained protection of property and intellectual rights, the rule of law applied impartially, no matter who they are or who they know, and a transparently enforced leveling of the playing field will bring investment – whether or not the war in the east returns to boiling point.

Those in the trenches facing off against the Ukrainian armed forces in the east are problematic, but it is those that are entrenched in the corrupt networks at all levels in and behind the Verkhovna Rada are a far more destructive force.

One has to suspect the later is far more of a threat to sustained economic growth in 2016.

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