Forecasts: what should global economics prepare for and how it affects Ukraine?
Last year, the Managing Director of the IMF, Christine Lagarde, “excited” the world with an amazing news: the financial crisis can repeat itself in the near future. Given that crises are difficult to forecast, it is impossible to say exactly the day the global financial crisis occurs. But, according to Lagarde, one should start preparing for the worst now.
And Ukraine is prepared according to Olexandr Danyliuk, Head of the Ministry of Finance. In a recent interview to the Novoe Vremya, he said that the country is “expecting a crisis” and seeks ways to reinforce its economy. Mainly by attracting international investment and improving the business climate. This will allow compensating losses in the event of deterioration of external markets, on which Ukraine is heavily dependent and which are first to take the heat once the financial crisis kicks in.
However, the government’s forecasts concerning the development of Ukrainian economy in 2018 are optimistic: GDP growth is expected to be 3% and inflation is expected to be reduced to 9%. The global economy will be in an active development this year and some areas will have a positive impact on Ukraine, while some other will have a negative one.
In recent years, the global wheat prices remained low. But this year the situation is going to change. The beginning of January was marked by a fall in the prices for European crops – mainly due to the Euro decrease against the US dollar. However, the prices for Ukrainian crops increased due to a consistently high demand, primarily, for wheat. The milling wheat became $1-3/t more expensive on average and the feed wheat — $1-2/t. This tells us of the increasing competitiveness of Ukrainian agricultural raw materials.
But the thing is that global prices for crops are mostly formed by countries of the Black Sea region, including Ukraine. If the crop yield is high in 2018, it will serve as a deterrent to the price increase.
In 2017, the global bond market has shown a great growth. It will continue to grow this year. Also, the stock market is expected to grow by 10-12% due to the positive changes as a result of the tax reform in the United States, which was adopted last year. If what Oleksandr Danyliuk promised is implemented and Ukraine finds itself capable of returning to the international bond market, it will allow attracting more investments to the country. That would require series of reforms, including the creation of the Anticorruption Court.
In the meantime
2018 should mark the rampant development of the global economy. The increase is estimated to make 3%. Highly-developed countries will become the drivers of such economic growth. States with less developed economies will show an average growth of 4 to 4.5%. With this in mind, the 3% GDP as projected by the Ukrainian government is clearly not enough. Such growth rates will not allow the country to catch up with the world economy.
The same drastic situation is on the steel market. Iron ore prices are expected to fall and then the finished steel prices. The reason for it is China, which traditionally limits the production of steel and aluminium in winter. This time, however, this limited production may turn out to be a prolonged one. The issue is that China has been long manufacturing more products than it can sell. By imposing restrictions, the Chinese government hopes to clear the market from non-profitable companies.
This post is also available in: Russian