Ukraine, already facing recession, may see its economy shrinking by as much as 2 percentage points more should Russia halt trade as a conflict widens between the two ex-Soviet partners, Premier Arseniy Yatsenyuk said.
The trade relationship between Ukraine and Russia is “getting worse,” Yatsenyuk said in an interview on Bloomberg Television. “We do not have any kind of real relationship. we have the war. It will severely hamper Ukrainian gross domestic product.”
Ukraines’s economy has been battered by deadly anti-government street protests, Russia’s annexation of the Crimean peninsula and a pro-Russian insurgency in the nation’s eastern industrial heartland. Gross domestic product may shrink 6.5 percent this year, the government and the IMF predict now, compared with the 5 percent contraction they forecast in May.
Russia limited trade ties with Ukraine a year ago for planning to sign a trade agreement with the European Union in November. Ukraine’s then-President Viktor Yanukovych snubbed the deal because of concern over halted trade, sparking a popular street protest that led to his ouster. Yanukovych’s successor, Petro Poroshenko, signed the deal last month.
Ukraine will lose $5 billion per year if Russia stops trade, Yatsenyuk said.
Russia “wages a war, they supply terrorists, they supply weapons, they cut off the gas supply, they want to stop our bilateral trade,” Yatsenyuk said. “The ultimate goal of Russia is just not to have Ukraine on the map.”
The government needs to increase financing of its army as fighting with pro-Russian rebels intensified in Ukraine’s two easternmost regions, Yatsenyuk said. The conflict, which Ukraine, the U.S and the EU say is stoked by Russia, claimed hundreds of lives. Pro-Russian rebels shot down Malaysian Air jet with 298 people on board on July 17, Ukraine and its allies said.
“Our preliminary assessment is that we need additionally about $1 billion for the defensive operations until the end of the year,” Yatsenyuk said.
Russia cut off the natural-gas supply to Ukraine, which depended on Russia for almost half of its fuel needs, in June as both countries appealed to Stockholm court.
“The prospects of a new deal with Gazprom are very vague but we have an action plan how to survive,” Yatsenyuk said. “It is very difficult, we still need to find about 7 billion cubic meters of gas.”