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CORONAVIRUS – De toestand in Oekraïne
COVID-19 crisis in Ukraine
As of July 6, 49 043 cases of COVID-19 had been confirmed, including 1262 deaths and 21 703 fully recovered. The incidence rate started to decline – as of July 6, 543 new cases of coronavirus were confirmed. The Ministry of Health of Ukraine has developed criteria for "zoning" countries depending on the spread of COVID-19 per 100,000 population. Ukraine is in the “red zone” with 59,7 cases per 100 000 as of July 3. The first case in the country was identified on March 3. The main sources of the initial outbreak were Ukrainians returning from work and tourist trips from abroad. From May 22 till July 31 Ukraine has entered the adaptive quarantine stage – most of the restrictions have been lifted. Since June 15 air service has been recovered. Foreigners are permitted to entry Ukraine.
Situation prior to COVID-19: the economic outlook was stable prior to the outbreak of COVID-19, with steady growth, moderate public debt and relative price and currency stability. However, a change of government in early March entailed a degree of political turmoil and reorganisation that may have slowed the initial response. Ukraine was already facing large foreign debt repayments in 2020, and negotiations with the IMF had stalled over issues like banking and land reform. Without an IMF deal, the risk of a sovereign default would increase. The unemployment rate in 2019 was above 9% of the labour force, the share of informal workers in the economy remains very high (up to 30%), and the social safety net is weak. Low domestic savings and limited fiscal space constrain the ability of households or the public authorities to absorb exogenous shocks.
The COVID-19 pandemic has already inflicted severe impact on the Ukrainian economy. Short-term indicators: the Government projects a 4,8% drop in GDP this year due to the pandemic. Yulia Kovaliv, the Deputy Head of the President's Office, has suggested that the contraction under even an optimistic scenario would amount to 5%.
Impact of the pandemic
To begin with, the decreased/stopped economic activity in the sectors affected by the shutdown, as well as lower demand for Ukrainian exports and lower remittances from abroad had adverse impact on the Ukrainian economy. Travel restrictions almost completely stopped local and international tourism.
Second-round effects stem from reduced household income, redirection of government spending and disruption of investment plans of companies, resulting in lower demand for a wide range of goods and services. For example, reduced electricity demand caused disruptions in energy system balance and lower demand for coal.
Transport sector was affected both by the shutdown and lower external and domestic demand. In April freight transportation (in tonne/km) decreased by 27%, including a 7,5% drop in railway freight and a 27% drop in trucking freight. The shutdown of intercity transport and restricted services of the local transport reduced passenger transportation by bus (in passenger/km) and by electric transport (trolleybuses and trams) – by 95% and 75% yoy respectively. Passenger services by rail and underground was stopped completely.
Retail sales decreased by 15% in April yoy, as sales of essential goods (food, pharma, fuel – accounting for 61% of total retail sales in 2019) did not drop significantly, and sales of “non-essential” products continued to some degree despite wide-ranging store closures. There were no significant disruptions in retail supply chains, and consumer prices remained broadly stable, increasing by 0.8% in March and April.
Industrial production fell by 16,2% in April yoy even though no industrial plants were ordered to shut down. The drop in output was more severe than the decline in demand likely due to uncertainty about future orders and the build-up of inventories in March. Food, beverages and tobacco production dropped by 6,5% yoy, metal industry production – by 30% and machine-building – by over 35%. Chemical industry increased output by 6,5% and pharmaceutical production – by over 17% due to higher demand for disinfectants and medicines.
Agricultural sector was not impacted significantly by the pandemic so far. The agricultural output remained at 2019 level in April 2020, and spring sowing went ahead as planned.
However, drought in March and April damaged winter crops, which may reduce the harvest this year. Livestock numbers dropped by 5% yoy for pigs and 7% for cattle, but this trend started before the shutdown.
Ukrainian exports showed varied performance over the last few months. Demand for key export commodities such as wheat, maize, sunflower oil, iron ore, and steel was resilient. Customs data show lower physical volumes of maize exports (-15% yoy) and steel exports (-7%) in April, but exports of sunflower oil, iron ore and wheat increased significantly (by 44%, 31% and 28%, respectively). In dollar terms the export of textile industry products dropped by 45% yoy, of machinery and equipment – by almost 40% yoy in April.
Customs data on imports highlighted a significant decrease of domestic demand and the effects of lower commodity prices. Energy imports dropped by over 40% yoy in dollar terms in April and imports of machinery and equipment fell by over 29%. Imports of textile and apparel declined by 30%.
Financial markets. Since the beginning of the crisis, the yield on Ukraine’s long (2028) Eurobond has jumped by 150 basis points, effectively locking the country out of international debt markets. By mid-May, the Ukrainian Hryvnia (UAH) has fallen by 12% against the dollar (USD) since the beginning of the year. From UAH 23,5/USD, it reached a peak of UAH 28,3/USD in late March, notably due to soaring demand for foreign currencies. In May 2020 the Ukrainian currency slightly rebounded and is now trading at UAH 26,7-27,0/USD.