Ukraine Annual Review 2009: the deepest year, and what it rebuilt
Output down around fifteen percent, the sharpest contraction of the independence period, and the year that produced the sectoral composition Ukraine still has.
The year in one paragraph
Ukraine recorded the deepest annual contraction of its independent history, interrupted gas transit to Europe in January with strategic consequences lasting fifteen years, allowed its external financing programme to lapse ahead of a presidential election, and emerged with a permanently different economic structure in which agriculture and IT services had replaced part of what heavy industry had been.
The four quarters
Q1 — the gas interruption reaching European customers; the trough of the contraction.
Q2 — the bottom; the permanent sorting of Ukrainian business by currency exposure.
Q3 — stabilisation, a strong harvest, fiscal deterioration ahead of the election.
Q4 — output recovering slowly; the uneven damage becoming visible.
What was permanently lost
A substantial part of the chemical industry, which never recovered its pre-2008 output because it faced both the gas price increase of 2006 and the demand collapse of 2008 within thirty months.
A large share of construction capacity and the workforce attached to it.
Transit leverage in energy, forfeited in two weeks of January.
And the credit channel, which did not function normally again for most of the following decade.
What was permanently gained
An agricultural sector with a cost structure that made it globally competitive, which is the foundation of everything the sector achieved in the following fifteen years.
An IT services export industry that discovered, through the devaluation, that Ukrainian technical labour was extremely competitively priced — and which then grew every single year afterwards, through two more crises and a war.
And a floating exchange rate in practice if not yet in doctrine, which removed the single most damaging feature of the pre-crisis policy framework.
The commercial reading
2009 is the year to study for anyone assessing what happens to a market in a severe contraction.
The finding that transfers is that severe crises do not damage economies evenly and do not damage them permanently in every sector. They accelerate structural change that was already latent, they destroy the parts of the economy that were only viable under the previous conditions, and they leave the parts that were competitive on their own terms stronger relative to everything else.
A company assessing a market in crisis should therefore not ask how bad the aggregate is. It should ask which sectors will be structurally stronger on the other side — and in Ukraine in 2009, that question had a clear answer that was available at the time and acted on by very few.
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