Ukraine Market Report — Q4 2009
The worst year in the country's independent economic history ended with output stabilised, the currency steady and a presidential election weeks away. What had been destroyed was not evenly distributed.
Overview
The quarter closed a year in which output fell by around fifteen percent — the deepest annual contraction of the independence period.
By the end of it, the currency was stable, industrial output was recovering slowly and the harvest had been sold profitably.
The uneven destruction
The headline figure conceals the most important fact about the year: the contraction was extremely uneven.
Metallurgy, chemicals and construction lost a very large share of their output, and a substantial part of it never returned. Some of the capacity idled in 2008 and 2009 was never restarted, and the workforce attached to it moved to other sectors, other regions or abroad.
Agriculture grew. Food processing held. IT services grew strongly, in part because the devaluation made Ukrainian development hours dramatically cheaper for foreign clients.
What emerged from the crisis was a differently shaped economy — less industrial, more agricultural, with a services export sector that had barely existed five years earlier.
Macro position
Output stabilised at a level roughly comparable to 2005. Currency steady. Fiscal deficit large. External financing programme off track. Banking sector carrying substantial unrecognised losses.
Sectors
Agriculture — the year's clear winner.
IT services — growing rapidly and almost unmentioned in the economic commentary of the period.
Metals — partial recovery at lower prices.
Banking and construction — the sectors that would take years to repair.
What the quarter settled
That a crisis restructures an economy in ways that policy rarely manages to.
The shift away from heavy industry toward agriculture and services that Ukrainian policymakers had discussed for a decade was achieved in eighteen months by a currency movement and a collapse in commodity prices, at a human cost that no policy would have been permitted to impose.
That is not an argument for crises. It is an observation about how structural change actually happens in economies of this kind, and it explains why the 2010s look so different from the 2000s.
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