The economy of Ukraine is an emerging free market, with a gross domestic product that has experienced rapid growth in recent years. Ukraine's economy is ranked 33rd in the world according to 2007 GDP (PPP). Formerly a major component of the economy of the Soviet Union (both in industry and agriculture), country's economy experienced major recession during the 1990s, including hyperinflation and drastic falls in economic output; GDP growth was first registered in 2000, and reforms are continuing. In 2007 the economy continued to grow and posted real GDP growth of 7%. Ukraine was hit heavy by the economic crisis of 2008.
Ukraine has many of the components of a major European economy - rich farmlands, a well-developed industrial base, highly trained labour, and a good education system. At present, however, the economy remains in poor condition. While Ukraine registered positive economic growth starting from 2000, this came on the heels of eight straight years of sharp economic decline. As a result, the standards of living for most citizens has declined more than 50% since the early 1990s, leading to a relatively high poverty rates. The macro-economy is stable, with the hyperinflation of earlier in the decade having been tamed. Ukraine's currency, the hryvnia, was introduced in September 1996, and has remained fairly stable. The economy started growing in 2000, and growth has continued. GDP in 2000 showed strong export-based growth of 6% - the first growth since independence - and industrial production grew 12.9%. The economy continued to expand in 2001 as the real GDP rose 9% and industrial output grew by over 14%. Growth of 4.6% in 2002 was more moderate, in part a reflection of faltering growth in the developed world. In general, growth has been undergirded by strong domestic demand, low inflation, and solid consumer and investor confidence. Growth was a sturdy 9.3% in 2003 and a remarkable 12% in 2004, despite a loss of momentum in needed economic reforms.
Ukraine is relatively rich in natural resources, particularly in mineral deposits. Although oil reserves in the country are largely exhausted, it has other important energy sources, such as coal, natural gas, hydroelectricity and nuclear fuel raw materials.
Ukraine has a major ferrous metal industry, producing cast iron, steel and pipes. As of 2005, Ukraine was the world's eighth largest steel producer. Another important branch is the country's chemical industry which includes the production of coke, mineral fertilizers and sulfuric acid. Manufactured goods include metallurgical equipment, diesel locomotives, tractors, automobiles, The country possesses a massive high-tech industrial base, including much of the former USSR's electronics, arms industry and space program. However, these fields are state-owned and underdeveloped in terms of business practices.
Ukraine is a major producer of grain, sugar, meat and milk products.
Since the late 1990s, the government has pledged to reduce the number of government agencies, streamline the regulatory process, create a legal environment to encourage entrepreneurs, and enact a comprehensive tax overhaul. Outside institutions — particularly the IMF — have encouraged Ukraine to quicken the pace and scope of reforms and have threatened to withdraw financial support. But reforms in some politically sensitive areas of structural reform and land privatizations are still lagging.
Ukraine encourages foreign trade and investment. The Parliament of Ukraine has approved a foreign investment law allowing Westerners to purchase businesses and property, to repatriate revenue and profits, and to receive compensation if the property is nationalized by a future government. However, complex laws and regulations, poor corporate governance, weak enforcement of contract law by courts, and corruption all continue to stymie direct large-scale foreign investment in Ukraine. While there is a functioning stock market, the lack of protection for shareholders' rights severely restricts portfolio investment activities. Total foreign direct investment in Ukraine is approximately $17.4 billion (17.4 G$) as of April 2006, which, at $371 per capita. Much reform is still needed, in order to stabilise the investment climate.
Most of Ukrainian trade is conducted with Russia and the European Union. An overcrowded world steel market threatens prospects for Ukraine's principal exports of non-agricultural goods such as ferrous metals and other steel products. Although exports of machinery and machine tools are on the rise, it is not clear if the rate of increase is large enough to make up for probable declines in steel exports, which today account for 46% of the country's overall exports.
Ukraine imports 90% of its oil and most of its natural gas. Russia ranks as Ukraine's principal supplier of oil, and Russian firms now own and/or operate the majority of Ukraine's refining capacity. Natural gas imports come from Russia - which delivers its own gas, as well as the gas from Turkmenistan. Instead, Ukraine is transporting Russian gas to EU through its well-developed gas pipelines system, being Europe's vitally important connection. The country's dependence on Russian gas supplies dramatically affects its economics and foreign policy, especially after the recent major gas dispute.
However, Ukraine is independent in its electricity supply, moreover, exporting it to Russia and other countries of Eastern Europe. This is achieved through a wide use of atomic energy and hydroelectricity. The recent energy strategy intends gradual decreasing of gas- and oil-based generation in favor of nuclear power, as well as energy saving measures, shortening of industrial gas consuming. Reform of the still inefficient and opaque energy sector is a major objective of the International Monetary Fund (IMF) and World Bank programs with Ukraine.
The IMF approved a $2.2 billion Extended Fund Facility (EFF) with Ukraine in September 1998. In July 1999, the 3-year program was increased to $2.6 billion. Ukraine's failure to meet monetary targets and/or structural reform commitments caused the EFF to either be suspended or disbursements delayed on several occasions. The last EFF disbursement was made in September 2001. Ukraine met most monetary targets for the EFF disbursement due in early 2002; however, the tranche was not disbursed due to the accumulation of a large amount of VAT refund arrears to Ukrainian exporters which amounted to a hidden budget deficit. The EFF expired in September 2002, and the Ukrainian Government and IMF began discussions in October 2002 on the possibility and form of future programs.
In 1992, Ukraine became a member of the IMF and the World Bank. It is a member of the European Bank for Reconstruction and Development. In 2008 the country joined World Trade Organization. Ukraine applied for WTO membership in 1993, but its accession process was stalled for 15 years.
A political crisis in the middle of 2006 was feared as a threat to economic and investment stability, however, despite the forecasts, the political situation has not scared investors. The GDP has shown a good growth rate of 7% in 2007, compared to the previous year. Industrial output has increased. Car sales soared, while the banking sector has expanded, thanks to the arrival of European banks.
Ukraine and the economic crisis of 2008
Ukraine was hit heavily by the economic crisis of 2008, analysts say the plights of Ukraine are slumping steel prices, local banking problems and a threatened cutting of Russian gas supply in the New Year. The also say the situation is not as problematic as in is as Iceland, which had banking debts several times the size of its gross domestic product. Key industries such as metallurgy and machine building are laying off workers, and real wages have started to fall for the first time in a decade. This makes it hard for Ukrainians to make payments on loans, many of which, especially mortgages, were issued in dollars. Since most people are paid in hryvnyas, they have to buy dollars with the weak hryvnya and are paying back much more on the loans than they had expected. The share of problem loans in bank portfolios grew to 10.3 percent by December 11 and is continuing to grow. Banks have all but stopped issuing loans, and clients have hurried to withdraw deposits. In October the National Bank of Ukraine introduced a moratorium on withdrawals ahead of schedule.
Industrial output in November tumbled 28.6 percent, following a 19.8 decline in October. Steel production slumped 48.8 percent, oil refining and chemical output fell 35.2 percent and machine building by 38.8 percent. Ukraine`s economy shrunk 14.4 percent year-on-year in November 2008. Statistical data showed the gross domestic product (GDP) growth slowed to 3.6 percent in January-November compared to 5.8 percent in January-October. Ukraine`s Economy Ministry expects the economy to grow 3.5-4.0 percent in 2008. The Hryvnia also lost value.
According to a poll (held November 25 through December 5, 2008) by the Horshenin Institute of Management Problems about 79% of those polled suffered from rise in prices, about 29% from delays in payment of salaries. More than some 20% have suffered from reduction of salaries. In the families of some 14.8% somebody lost their job, and some 6% said their enterprise shut down. A total of 90.8% of those polled described their financial state as "making both ends meet" and 83.1% said they are short of money for food. Only 2.4% of Ukrainians said they were not hit by the economic crisis at all.
Mid-December 2008 the International Monetary Fund (IMF) has lowered the forecast for Ukraine's GDP in 2009 from a 2.5% growth rate to a 5% decline, the same day the Cabinet of Ministers worsened the GDP growth forecast to 0.4% from 6% for 2009.
In November 2008, the IMF approved a stand-by loan program for Ukraine to the tune of $16.5 billion.
In November 2008, the official unemployment rate increased by 0.4 percentage point to 2.3, the State Statistics Committee said that as of December 1 (2008), it registered 640,000 unemployed people.