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Ukraine on the Road to Recovery?

There’s a piece today in the Financial Times about some modest signs that commodity demand may be picking up to help the Ukrainian economy get itself out of the gutter – though the rough times appear to be far from over.  What caught my eye on this article were two interesting facts – that the second gas war between Gazprom and Ukraine caused industrial production to fall by 16% month on month as Kiev diverted its remaining supply to heating people’s houses (talk about the energy weapon!).  The other detail was the fact that the IMF was delaying in its delivery of the second tranche of its $16.4 billion loan because of the unending political squabbling between the camps of President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.  Needless to say, they’ve really got to get their act together, but it remains to be seen whether Tymoshenko’s decision to visit Moscow and give away the farm (by indicating that the Russians can own all the infrastructure) was a good idea for the country’s future sovereignty.  Many would argue that she had no choice in order to get the fines waved.

“We certainly have a tendency towards stabilisation under way, with steel exports picking up in recent months,” Oleksandr Shlapak told the Financial Times in an interview. “And, thank God, we are expecting another big harvest after a record last year.”

As one of the world’s leading steel, grain and chemical exporters, Ukraine’s fortunes are heavily dependent on international commodity demand.

MrShlapak said industrial production and steel exports – Ukraine’s mainsources of hard currency – had risen since February, helped by sharpdevaluation of the hryvnia.

It was unclear, however, whetherthe positive data amounted to a sustainable improvement, or a temporaryrebound from an artificially low base, added Mr Shlapak.

Kievhalted gas deliveries to industry to keep domestic heating runningafter Russia cut off natural gas supplies in January. Industrial outputcontracted 16 per cent month on month in January as the energy crisisexacerbated the effect of waning demand for steel.

“We areexpecting improvements in the coming months, but it’s hard to say if itis sustainable. Much depends on global demand and other world factors,”said Mr Shlapak.