KIEV, Ukraine — Last year, the Ukrainian economy nearly collapsed in the global financial crisis as steel plants stopped production. Angry Ukrainians emptied their bank accounts.
Today, the capital's diners are crowded again as the country's economy bounces back strongly, largely on demand for its steel from the global recovery.
But experts are warning that Ukraine remains far too dependent on exports and the world economy. If demand for steel falls, they say, the country could face another free fall.
Ukraine is expected to become the second-fastest growing economy among emerging markets in 2011, trailing oil-rich Kazakhstan, according to Dragon Capital investment bank in Kiev. Experts say Ukraine is growing faster than others because it was one of the worst affected by the global financial crisis and the growth is fueled mostly by rising prices for metals, its main export.
“The Ukrainian economy is highly exposed to global commodity cycles,” said Olena Bilan, chief economist at Dragon Capital, a leading investment company in Ukraine. It “contracted sharply and now is recovering faster than regional peers.”
And commodities, including metals, are up strongly worldwide. Low interest rates and loose monetary policies by the U.S. Federal Reserve and other central banks also play a role, as investors pour easily available cash into commodities in search of higher yields.
Gross domestic product is expected to grow 4.3 percent this year and 4.6 percent in 2011 after plummeting 15 percent in 2009, according to Dragon. France, by comparison, will grow a modest 1.6 percent this year after contracting 2.6 percent in 2009.
The growth is also spurred by political stability brought by the election of Kremlin-friendly President Viktor Yanukovuch, which ended years of government paralysis due to fighting between former President Viktor Yuschchenko and then-Prime Minister Yulia Tymoshenko. The country's finances were stabilized by a hefty $15 billion bailout loan from the IMF.
Restaurants in Kiev are snapping back to life as Ukrainians can afford to eat out more. Shokoladnitsa, a coffee shop chain, opened a 10th cafe in Kiev this year and introduced sushi to its menu as sales grew 10 percent and the number of customers went up 5 percent to 7 percent compared with last year, when sales contracted 30 percent.
Some Ukrainians are feeling the change. Some aren't.
Valery Ilyin was afraid he would lose his $110,000 three-room apartment in southwestern Kiev when his dollar mortgage doubled after the hryvna lost 50 percent of its value at the end of 2008, falling from five to 10 hryvna against the dollar. The currency has now stabilized at eight hryvna to the dollar, and he hopes to pay off the loan in five years.
“I think about my future plans in a positive way now,” said Ilyin, who is married and has two daughters and a son. “When there is some kind of stability, things look hopeful.”
But the recovery hasn't reached many.
Yaroslava Stalchuk, a 72-year-old retired accountant, spends most of her 1,000 hryvna ($125) monthly pension on kidney medication and sells cigarettes for 25 hryvna ($3) a pack in downtown Kiev to feed herself. “Whatever I earn here is my dinner, and I cannot afford much,” said Stalchuk, adding that she usually eats buckwheat porridge, cottage cheese, milk and bread after food prices more than doubled in the past couple of years.
Encouraged by higher salaries, a strengthened hryvna and political stability, more fortunate consumers are back at department stores, snapping up vacuum cleaners, cell phones and pricier groceries. Retail sales were up 5.2 percent in the first nine months of 2010, compared with the same period in 2009, Dragon Capital said. The retail sector contracted by 20.7 percent in 2009.
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