Ukraine’s Third Recession Since 2008 Confirmed on Industry Drop

Ukraine’s economy slipped into its third recession since 2008 in the third quarter as industrial production plummeted.

Gross domestic product fell 0.4 percent from the previous three months after shrinking 0.5 percent in the second quarter, the state statistics committee, based in the capital, Kiev, said today on its website, citing preliminary data. GDP fell 1.5 percent from a year earlier, worse than the median estimate of 12 economists in a Bloomberg survey for 0.2 percent growth.

“The economy is in a protracted stagnation as it moves from one recession to another,” Alexander Valchyshen, head of research at Investment Capital Ukraine in Kiev, said by phone. “The government’s policy to boost economic growth has failed.”

Ukraine is struggling amid falling global demand for products such as steel, a widening current-account gap, shrinking foreign reserves and trade restrictions from Russia, its biggest export market. It’s failed to seal a loan from the International Monetary Fund as the government rejects conditions including higher household energy tariffs. Moody’s Investors Service cut its junk rating further last month.

Yields on Ukrainian dollar debt due 2014 rose 57 basis points to 15.33 percent, the highest level since Oct. 10, as of 5:48 p.m. in Kiev, according to data compiled by Bloomberg. The hryvnia fell to 8.1875 per dollar from 8.1730 yesterday.

Industry Decline

Industrial production declined 5.2 percent from a year earlier in the first nine months, compared with 0.6 percent growth in the same period of 2012.

GDP growth will be “slightly” negative in the whole of 2013, Valchyshen said. First Deputy Prime Minister Serhiy Arbuzov has said the economy will grow less than 1 percent.

Ukraine must act quickly to correct economic imbalances that threaten to swell its budget and current-account deficits beyond the government’s control, the World Bank said Oct. 7.

Moody’s downgraded Ukraine’s credit rating on Sept. 20 by one level to Caa1, seven steps below investment grade, citing growing political and economic risks due to deteriorating relations with Russia, low foreign reserves and a lack of progress on an international bailout from the IMF.

Central bank reserves were at a seven-year low of $21.6 billion at the end of September, down from $29.3 billion a year earlier, as policy makers intervened to support the hryvnia. The stockpile is less than three months of imports, a threshold economists deem important for financial stability.

To contact the reporters on this story: Andrew Langley in London at alangley1@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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