Ukraine Market Report — Q4 2013
The signature was suspended in November, protests began the same week, and a bilateral financing package was agreed in December. The quarter ended with the country's direction genuinely unresolved.
Overview
On 21 November the government suspended preparations for signing the association agreement with the EU. Protests began in central Kyiv within days and continued through the rest of the quarter.
The agreement was not signed at the summit in late November.
In December a bilateral package was agreed providing external financing through the purchase of Ukrainian eurobonds and a reduction in the gas import price.
What the December package did
It addressed the immediate financing problem that had been visible since 2011: reserves falling, no programme financing, a fixed exchange rate under pressure.
The financing was substantial and available quickly, without the tariff conditions an IMF programme would have carried.
Its structural effect was the same as the 2010 gas arrangement. It removed the pressure that would have forced the adjustment, and it did so at a moment when the adjustment had already been deferred for three years.
Only part of the financing was disbursed before events overtook the arrangement in February.
Macro position
The year closed with output roughly flat to slightly negative. Industrial production down. Very low inflation. Reserves at their lowest level in years. The exchange rate still fixed.
Business activity in December was disrupted by the political situation in Kyiv, though commercial operations outside the capital continued largely as normal — the same pattern observed in 2004.
Sectors
Agriculture — an exceptional year, and the only large sector clearly growing.
Metals, chemicals, machine building — all contracting.
Retail — flat, with December trading affected in Kyiv.
IT services — growing.
What the quarter settled
Nothing. That is the accurate assessment and it is unusual.
Most quarters resolve something. This one suspended a trade decision, secured financing that was contingent and partially disbursed, and left the country's direction genuinely open in a way it had not been at any point since 2004.
For a company, a quarter that resolves nothing is worse than one that resolves badly, because a known bad outcome can be planned around and an open question cannot.
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