Forecast for economic development of Ukraine in 2016 from «Aleksey Pukha and Partners»

According to expert estimates, in 2016 negative tendencies in global economy development is going to slowdown if compared with previous year. This tendency lasts mostly due to weak economic growth in oil-exporting countries, slowdown in China’s development and adjustment of the situation after lending and investment glut. Of course, these global trends will affect the economy of Ukraine. Experts predict that Ukrainian economy will fall by 9% this year, – note legal firm «Aleksey Pukha and Partners».

GDP. EBRD and IMF downgraded their forecast for Ukrainian GDP in 2016 from 3% to 2%. Optimistic forecast of National Bank has estimated GDP level at 2.4% for 2016 that equals in monetary terms 2,262 billion UAH provided that inflation level is 12%. As for the pessimistic variant, Ukraine's GDP will decline by 0.3% with inflation at 14.7%.

Industry. Destruction of economic ties between different sectors of economy in the result of military operations will gradually recover in 2016. Free-trade zone with the EU will have positive result for importers, but exporters will have to compete with European products, which conform to the highest quality requirements and certification. In the Ukrainian internal market, the trend of supporting domestic producers is underway.

Trade. As to the forecast for export of goods and services, the growth should occur within 3-5%. Import of goods and services will remain at the level of previous year. However, foreign trade balance will be negative. The government forecasts deficit in foreign trade balance at the level of 1.1-1.9 billion US dollars that indicates continuation dependence on imports in economy.

Finances. Banking system undergoes a protracted crisis; capital deficit reaches 40-50 billion UAH. There is a high risk that outflow of deposits will continue throughout 2016. National currency will remain in the area of devaluation pressure; dollar exchange forecast is at the rate of 24-28 UAH per US dollar and 29-30 UAH per US dollar by the end of the year. Experts predict that euro will be at the rate of 1.07 US dollars in the first quarter of 2016, 1.05 US dollars in the second and third quarter, and comes up with the dollar and the end of 2016.

Taxation. Government has simplified the tax system and made certain amendments to the Tax Code. Personal income tax rate has increased and reached 18% versus 15% in the previous year. Unified social tax for employers decreased since 2016 and makes 22% compared to 36.6% in 2015. Deduction of unified social tax for 3.6% from wages of employees was canceled. It is projected the growth of employee wages due to reduction of tax burden and, therefore, partial neutralization of inflation negative impact on the financial solvency of citizens.

Agricultural sector. Special tax treatment for farmers will continue until 1 January 2017. However, the process of VAT accumulation has been changed and now it depends on the type of sold products (one part shall be accumulated in special accounts of enterprises, and the other part shall be transferred to the state budget). This will have extremely negative impact on the development of the sector, especially in small and medium agribusiness where tax increased 1.8 times per one ha. It should be noted that agricultural production is one of the preferential export productions in Ukraine; consequently, it is arguable that that such a situation will reduce export opportunities for agricultural sector.

Investments. Significant growth of foreign investment to Ukraine in 2016 is not expected and is possible only in the IV quarter of this year. This is explained by unstable economic situation and military conflict. Therefore, in the situation of limited investments Ukraine's economy will depend on external financing. It is expected in 2016 the recovery of domestic investments, primarily due to the working capital of enterprises. The degree of public-private partnership development will remain at the level of 2015.

Labor market. Reduction of unemployment in the next year is not expected; it will remain at the level of 10-11%. Labor market is quite mobile; it is expected outflow of labor power from Ukraine.

It should be noted that according to Ukrainian government estimates, the year 2015 was the year of macro-economic stabilization, and the year 2016 will be the year of economic recovery. Economic growth during the year will not be uniform; it will be activated only in the second half of 2016.

People in «Aleksey Pukha and Partners» believe that 2016 will be a watershed year in the development of economy, followed by a gradual recovery.

This article contains experts' forecasts.