If recent examples of revolution and politcal transition are anything to go by, Ukraine is in for a nasty shock in terms of economic growth.
Following a year of upheaval, GDP growth rates can weaken by between 4 to 8 percentage points the following year, according to a Capital Economics note on Thursday.
Comparing the GDP performance of Egypt and Tunisia in 2011, Ukraine in 2004 and Georgia in 2003, William Jackson of Capital notes that what the countries “all have in common is that growth slowed substantially” in the quarters following a political transition. Here’s the chart:
Interestingly, in 2004 Ukraine didn’t actually go into recession. But this time around, the economy is in much worse shape:
The key difference between Ukraine in 2004 and now is that the economy is currently on a much weaker footing. Whereas GDP was expanding at double-digit rates in 2004, output has contracted by around 1% y/y for the past 18 months. What’s more, a large current account deficit (9% of GDP), high levels of short-term external debt and extremely low foreign exchange reserves have pushed the country to the brink of a balance of payments crisis.
That could mean Ukraine is heading for a contraction of anything from 5 to 9 per cent this year.
Jackson admits that his note is “by no means a scientific way to forecast” and that “no two political transitions are the same”. However, he suggests that “historical cases can still be instructive” and “whichever way you cut it, 2014 looks set to be a pretty disastrous year for Ukraine’s economy.”
Beyondbrics is inclined to agree.
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