Consumer inflation continued to show a downward trend in the fourth quarter of 2011 – the annual growth of consumer prices decelerated to 4.6% in 2011 (the lowest figure recorded in the last 9 years). The annual rate of core inflation declined to 6.9% (contribution to the CPI – 3.8 p. p.). It increased only by 1.1% in the fourth quarter, which was far below the average figure recorded in the last two years (1.9% over a quarter). Overall, demand-side factors continued to have a moderate effect on inflation developments – real GDP was below potential GDP. The annual rate of non-core inflation decreased to 1.7% on account of a bumper crop in 2011.
Signs of recovery in external markets and a gradual pick-up in domestic investment demand in the first three quarters of 2011 fueled a rise in the PPI. However, an upward trend reversed in the fourth quarter, taking a downward turn (by 3.0%). As a result, the annual growth rate of PPI decelerated to 14.2% in 2011 (from 21.3% in September on an annualized basis).
In the fourth quarter of 2012, real GDP grew by 4.7% year on year (annual real GDP growth stood at 5.2%), even against the backdrop of deterioration in the foreign economic conditions amid the ongoing recession in the countries, being Ukraine’s trading partners. The export-oriented industries suffered most. It had an impact on the export of goods. A high yield of crops (56.7 million tons) was a key factor behind an increase in exports.
Stable real wage growth and a slight decline in the inclination towards savings helped to maintain high domestic consumer demand. The fourth quarter saw a year-on-year increase of 12.6% in private consumption (14.6% over a year). It entailed a rise of 13.4% year on year in retail turnover in the fourth quarter, the annual growth standing at 14.7%.
The increased government funding of the arrangements for Euro 2012 maintained heightened investment activity throughout the year. The annual growth rate of gross fixed capital formation stood at 10.1%, annualized quarterly growth standing at 16.9%. The construction output grew by 11.1% and 11.5% respectively.
Against the backdrop of subdued Consolidated Budget revenues in the fourth quarter, expenditures grew at a moderate pace (12.4% and 13.4% respectively on an annualized basis). Despite a sharp rise in the deficit at the end of the year, fiscal conditions remained tight as a result of sticking to the path of retrenchment. However, access to financial markets was restricted.
According to our estimates, consumer inflation will remain moderate in 2012 on account of a bumper crop gathered in 2011, a slight rise in administratively regulated prices and owing to the balanced monetary policy pursued by the National Bank of Ukraine. Consumer inflation is likely to accelerate slightly in 2013, which will stem from the necessity to raise administratively regulated prices and tariffs. Furthermore, crop yields are expected to be moderate in 2012.
Economic growth in 2012 is expected to be below the potential level due to the low external demand and deterioration in the terms of trade, as compared with 2011. However, real GDP growth is expected to accelerate in 2013 in the context of the economic recovery in the euro area countries and other countries, which are Ukraine’s trading partners.
The full wording of the macroeconomic review (in Ukrainian) has been posted on the official website of the National Bank of Ukraine