NBU Chairman: Stagflation Has Begun in Ukraine

Existing evidence indicates that stagflation – an economic slowdown amid high inflation – has already begun in Ukraine. The Chairman of the National Bank of Ukraine, Volodymyr Stelmach, provided the analysis during his report to the Verkhovna Rada on the country’s monetary and credit situation.

During the first quarter of 2008, Ukraine’s inflation exceeded the projected level for the entire year by 0.1 percent, reaching 9.7 percent. At the same time, industrial output slowed to 7.8 percent, a 5.1 percentage drop compared with the first quarter of 2007.

“Amid rising inflation, we have seen industrial output declining. If this trend takes root, these two negative factors may combine to hamper economic growth,” Stelmakh said.

He said that the National Bank would do its best to prevent stagflation. Its monetary policy will focus on two tasks: ensuring that the money injected into the economy does not spur more inflation, and that sterilizing measures by the NBU do not put the brakes on the economy.

According to Stelmakh, large amounts of money were poured into the economy in the last months of 2007, and the NBU had to take measures to slow the inflow of money. For example, the NBU increased the size of commercial banks’ obligatory money reserves. Since the beginning of the year, it managed to sterilize some 20 billion hryvnias.

The NBU chairman said that the Ukrainian economy had enough money in circulation to ensure the planned GDP growth of 6.8 percent in 2008.

UNIAN reference: In October 2007, the International Monetary Fund improved Ukraine’s GDP growth forecast for 2008, moving it from 4.6 percent to 5.4 percent. The IMF also reviewed its 2008 year-on-year (December to December) inflation forecast, moving it from 10.6 to 17.1 percent.

The Fund also reviewed the average annual inflation forecast for 2008, increasing it from 10.8 to 21.9 percent.

In April 2008, the World Bank changed the projected inflation level for Ukraine from 13.8 percent to 17.2 percent, leaving the GDP growth forecast at 5.5 percent.

The European Bank for Reconstruction and Development projects Ukraine’s inflation will reach 11.7 percent, and its GDP will grow 6 percent.

According to the State Statistics Committee, Ukraine’s inflation reached 3.8 percent in March. In the first quarter of 2008, consumer prices rose 9.7 percent. In March alone, year-on-year inflation stood at 26.2 percent, and in the first quarter, inflation was 22.5 percent year-on-year.

The state budget for 2008 projects inflation of 9.6 percent and actual GDP growth of 6.8 percent. In mid-February, the government upgraded GDP forecast from 889.4 billion to 921 billion hryvnias.