Economists and political analysts are calculating opportunities for the normalization of relations between Russia and Ukraine. The majority agree that financial relations should be the starting point.
What trade links bind Russia and Ukraine together? Here, we must bear in mind the recent sanctions and counter-sanctions and what conclusions can be drawn after studying the trade statistics? Anna Lazareva with the details.
This three-letter acronym is the key indicator of any economy of the world: GDP meaning gross domestic product. After the sharp decline in 2015, the Russian economy began growing again and is increasing its pace. Ukraine survived a landslide decline of 6.5% and almost 10% in 2014 and 2015. During the past three years, the Ukrainian GDP has been growing. However, experts claim that Ukraine will require a lot of time to at least reach its level of 2013.
Dmitry Marunich, analyst: "The Ukrainian economy has basically decreased by 30% in dollar terms. During the last two years, it's been slowly recuperating by 2-2.5% per year. You see, various experts believe that the Ukrainian economy will reach the level of 2013 in 7-8 years, according to the most optimistic estimates. Perhaps even 10".
An economy depends on industry. The latter suffered great losses in Ukraine in 2014 and 2015. The annual decline was more than 10% which means that factories were closing and unemployment was rising. I'll address that later. Right now, industry is being restored but the growth is symbolic. Since the country doesn't earn much and lives beyond its means, it's forced to take loans. According to the Ukrainian Finance Ministry, Ukraine's national debt has grown by 12% since 2014, up to $78 billion. The government admits that servicing it costs up to one third of the budget. In 2019-2020, the country has to pay out $12 billion plus interest as stated earlier by the head of the National Bank of Ukraine. Russia's been working on decreasing its debt and now, it's close to its historic minimum: $51 billion, which is a little over 10% of GDP.
The low industrial growth rates and the sorry economic state has consequently lead to job cuts. The unemployment level in Russia has stayed below 5% for some time now. In Ukraine, one in ten citizens is unemployed. According to the 2018 assessment of the Economic Strategy Center Ukraine was ranked among the ten countries with the highest population of labor migrants. About 16% of the working age population was working abroad. That's about four million people.
According to the Ukrainian Pension Fund, the average monthly wages in February come out to almost 8,500 hryvnas which is about $320, two times lower than in Russia. Such incomes make it impossible to buy an apartment without a mortgage but the average mortgage interest rate in Ukraine is about 20-22%, according to estimates. The majority of the population don't earn that much. Everybody suffers from that: buyers can't afford a loan due to low paying capacity and high interest rates and developers have no money to fund future projects.
Sergey Lozovsky, analyst: "There's basically no such thing as a mortgage in current Ukraine because bank loans make it impossible to pay out one's mortgage or develop a business. Everything that has something to do with banks is currently impossible there".
Last year, the mortgage interest rate in Russia fell below 9%. Special state support programs for families with children make it possible to get a 5% annual interest rate for the entire duration of the loan. The news was shared by the VTB Bank today.
There's another economic indicator illustrating the recent relations of the two states: the export of Ukrainian goods to Russia. Last year, it decreased by 7.2% in per year terms and totaled $3.7 billion.
Konstantin Simonov, analyst: Another issue is that Poroshenko, as we all know, made severing all ties to Russia the focus of his presidency. That also applied to the economy. We know that the only mutual project he wanted to leave was the natural gas pipeline. That resulted in major problems.
- Why?
- Because Russia's traditionally been an outlet for Ukrainian products.
Economic experts consider outlets to be the key factor. The Ukrainian authorities voluntarily gave up the Russian outlet for their sophisticated goods. Later it became clear, that Ukrainian engines weren't in demand in Europe or the US.
Exports from Russia also decreased but Ukraine still purchases our gasoline, oil, oil products, and coal. The percentage of energy resources in the total export volume has been steadily growing over the years. For example, the percentage of Russian light oils has grown from 25% to 35% over the last year, according to the expert estimates.
