Ukraine Business Forecast Report Q4 2011

Executive Summary.. 5
Core Views.......5
Major Forecast Changes.5
Key Risks To Outlook ....5
Chapter 1: Political Outlook..... 7
SWOT Analysis... 7
BMI Political Risk Ratings. 7
Domestic Politics....... 8
Moving Towards Crisis...8
We believe Ukraines political trajectory is coming to a head. Deteriorating relations with Russia, the EU and the US against the
backdrop of flagging political support at home and an increasingly risk averse external financial environment means there will be tough
choices in the near term.
TABLE: Political Overview...... 8
Foreign Policy .. 11
Implications Of Tymoshenkos Arrest11
We believe that the arrest of Ukrainian opposition leader Yulia Tymoshenko on August 5 is yet another sign of power consolidation
measures by President Viktor Yanukovich.
Chapter 2: Economic Outlook 13
SWOT Analysis. 13
BMI Economic Risk Ratings.... 13
Economic Activity ... 14
Global, Domestic Concerns Drag Down Growth14
Following a marked slowdown in real GDP growth for Ukraine in the second quarter, we are revising downwards our expectations for full
year 2011 to 4.0% (from 4.4% previously).
TABLE: ECONOMIC ACTIVITY...... 14
Monetary Policy 16
Rates To Remain On Hold....16
With the pace of economic growth in Ukraine showing signs of slowing, we expect the benchmark interest rate to remain on hold at
7.75% through the end of 2011 and beyond. A deteriorating external environment, coupled with a still-fragile banking sector and weak
domestic credit conditions, means that the central bank will be wont to hike interest rates unless inflation takes a distinct path upwards.
TABLE: MONETARY POLICY 16
Fiscal Policy .... 17
Fiscal Forecast On Track.....17
Our core scenario for a modest improvement in Ukraines fiscal dynamics in 2011 remains on course, and we are holding to our forecast
for the budget shortfall to ring in at 3.8% of GDP this year.
TABLE: FISCAL POLICY 18
Exchange Rate Policy ..... 19
UA H: Unlikely To Move.19
TABLE: EXCHANGE RATE .... 19
Balance Of Payments ..... 21
Slowing Exports Bode Ill For Current Account..21
We are downgrading our outlook towards Ukraines balance of payments dynamics for 2011, as a slowing external growth profile
portends a larger current account deficit for the country.
TABLE: CURRENT ACCOUNT ....... 21
Chapter 3:10-Year Forecast... 25
The Ukrainian Economy To 2020.... 25
Convergence Delayed, But Still In Play......25
Ukraines economy is set to enter a period of lower growth on the heels of the 2008-2009 global financial crisis, with the private sector
likely to encounter more conditional entry into tapping international financial capital markets, which we believe will anchor trend growth
on a much lower trajectory over the long term.
TABLE: Long-Term Macroeconomic Forecasts.... 25
Chapter 4: Business Environment. 29
SWOT Analysis. 29
BMI Business Environment Risk Ratings...... 29
Business Environment Outlook...... 30
Institutions 30
TABLE: BMI Business And Operation Risk Ratings....... 30
TABLE: BMI Legal Framework Rating....... 31
TABLE: Labour Force Quality..... 31
Infrastructure.... 32
Market Outlook. 33
TABLE: Labour Force Quality..... 33
TABLE: Emerging Europe – Annual FDI Inflows.... 34
TABLE: Trade And Investment Ratings..... 35
TABLE: TOP EXPORT DESTINATIONS 36
Operational Risk....... 37
Chapter 5: Key Sectors... 39
Pharmaceuticals ...... 39
TABLE: Generic Drug Sales Indicators 2007-2015. 40
TABLE: OTC Medicine Sales Indicators 2007-2015.. 41
TABLE: Prescription Drug Sales Indicators 2007-2015...... 41
TABLE: Patented Drug Market Indicators 2007-2015.. 42
Telecommunications ....... 43
TABLE: Telecoms Sector – Internet – Historical Data & Forecasts..... 43
TABLE: Telecoms Sector – Fixed Line – Historical Data & Forecasts.... 44
TABLE: Telecoms Sector – Mobile – Historical Data & Forecasts. 44
TABLE: Telecoms Sector – Mobile – Historical Data & Forecasts. 45
Other Key Sectors.... 46
TABLE: Autos Sector Key Indicators....... 46
TABLE: Food & Drink Sector Key Indicators. 46
TABLE: Infrastructure Sector Key Indicators.. 46
TABLE: Defence & Security Sector Key Indicators... 47
TABLE: Oil & Gas Sector Key Indicators. 47
TABLE: Freight Key Indicators.... 47
Chapter 6: BMI Global Assumptions..... 49
Global Outlook.. 49
Weakness, But No Recession So Far..49
TABLE: GLOBAL ASSUMPTIONS . 49
TABLE: EMERGING MARKETS AGGREGATE GROWTH... 50
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST .... 51
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS 51