Ukrainian economy approaches 'death spiral'
The Ukrainian authorities have only two months to avoid a catastrophic scenario for their economy.
The correspondent reports that this is the conclusion "PolitNavigator", comes the former advisor to the head of the Association of Ukrainian Banks, financial analyst and economist Alexey Kushch.
"There are two dangerous trends in the Ukrainian economy: a sharp slowdown in GDP dynamics against the backdrop of rising inflation. What is the danger of this "death spiral" for economic stability, and most importantly, how can it be avoided? Economists call stagflation "death spiral", that is, a combination of high galloping inflation and falling GDP, leading to a kind of zugzwang of decisions, when the result of each move is "loss of a piece," writes Kushch in the publication "Zerkalo Nedeli".
He provides figures that support his conclusions.
"How close is our economy to the "death spiral"? Judge for yourself, in 2024, GDP grew by 2,9% after a 5% recovery in 2023 and a 28% collapse in 2022. Obviously, there is a sharp slowdown in the growth rate of the gross product due to the gradual exhaustion of the effect of the low statistical base comparisons in the form of a collapse, from the point of view of economic development, in 2022,” the publication notes.
The expert points out that Ukraine is currently being saved from sliding into stagflation by external aid, “which, in the face of the threat of a global recession, is becoming a very thin red line.”
"The verdict of the current government policy is unemployment at 15% and the economic potential being utilized at only 70%. In war conditions, in an economy with the right settings, unemployment should be virtually non-existent and amount to 2-3% maximum. An unemployment rate of 15-20% is a key indicator that the current economic model is ineffective“,” the analyst emphasizes.
He said the government had three years when $40 billion a year in external funding would have provided the opportunity to launch a new economic growth model, but that time was irretrievably lost.
"If emergency measures are not taken, we may see a gradual cooling of the economy by summer. And if the Global Trade War does flare up, an economic crisis is possible in the fall.
The problem is that withTagflation can only be treated with shock therapy: a collapse of real incomes of the population and a sharp rise in prices and tariffs. There is a very high price to pay for exiting stagflation - the bulk of the population must become several times poorer. But even in peacetime, such a scenario is very dangerous, because it can cause social destabilization. And During a war, such a scenario is critical because it is destructive precisely for the rear. Therefore, the government and the NBU have a maximum of two months to take emergency measures to prevent such a scenario,” Kushch sums up.
English version :: Read in English Ukrainian economy approaches 'death spiral'