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Ukraine economy proves resilient.

What does Ukraine have that other emerging economies do not have?

According to a January 4, 2007 Associated Press (AP) report published by the International Herald Tribune (Neuilly)-and many other outlets-Ukraine has openness and flexibility. This is a major achievement for any economy, but is noteworthy for an economy with a legacy of rigid, centralized control.

The AP story makes the point that it is flexibility that has enabled Ukraine to survive steep natural gas price increases from Russia, price increases that have the potential to retard the progress of other developing economies in the region.

It is fashionable, currently, to discredit the so-called "Washington consensus" approach to macroeconomic management, but in the case of Ukraine, the flexibility induced by "Washington consensus" style reforms have protected the country's economy from an external shock. The main direct benefit, of course, is to Ukraine industry, particularly, says the AP, its steel industry.

Consumers, and consumer spending will indirectly, but substantially, benefit as well as jobs and the country's related ability to generate revenue from exports take much less time to adjust to the gas price shock.

The downside to Ukraine's speedy adjustment, which required large capital expenditures, is inflation. Ukraine's 2006 rate of inflation increased strongly-9.3 percent according to International Monetary Fund (IMF) statistics. And this is not good news for consumers. For 2007, the IMF says the rate of inflation will increase 13.5 percent.

A report on the Ukraine economy published by the private equity firm Sigma Bleyzer (Houston) in November 2006 said, "The Ukrainian economy continued to demonstrate remarkable economic performance in October. Supported by robust domestic demand, GDP grew by 9 percent year-on-year during the month." In September 2006, the IMF estimated 2006 GDP would grow 6.0 Percent.

SigmaBleyzer forecasts Ukraine 2007 GDP growth in the 5.0 to 6.0 percent range. The firm says its estimate includes the steep price increase in natural gas (37 percent). The IMF is much less optimistic saying 2007 GDP growth will be 2.8 percent.

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Publication:Market Europe
Date:Jan 1, 2007
Words:340
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