EXCELLENT ARTICLE IF YOU WANT TO UNDERSTAND UKRANIAN POLITICS AND ECONOMY – AND TRUMP AND CHINA AND TRUMP’S IMPACT – AND IMPENDING RECESSION AND VIEW FROM UKRAINE Agency Home Politics Economy War Kyiv Society World Pictures Opinions Publications Archive Contact us Global economy on the verge of recession: How deep will Ukraine fall? YURIY KULIKOV 07:00, 16 August 2019 ECONOMY 457 0 OPINION In the last weeks of this summer, thunderclouds over the global economy, which have been looming on the horizon in recent months, began to amass rapidly, foreshadowing an imminent storm. After a decade of strong economic growth, the world is once again on the verge of a new recession. And now we are not talking about whether or not there will be a recession, it’s only about its severity and duration. Our country has been a part of the global economy for many years, so the problems in global markets will inevitably affect all of us. Moreover, the orientation of the Ukrainian economy on the exports o

Agency Home Politics Economy War Kyiv Society World Pictures Opinions Publications Archive Contact us Global economy on the verge of recession: How deep will Ukraine fall? YURIY KULIKOV 07:00, 16 August 2019 ECONOMY 457 0 OPINION In the last weeks of this summer, thunderclouds over the global economy, which have been looming on the horizon in recent months, began to amass rapidly, foreshadowing an imminent storm. After a decade of strong economic growth, the world is once again on the verge of a new recession. And now we are not talking about whether or not there will be a recession, it’s only about its severity and duration. Our country has been a part of the global economy for many years, so the problems in global markets will inevitably affect all of us. Moreover, the orientation of the Ukrainian economy on the exports of raw materials will lead to the fact that the storm may hit us harder than it will our neighbors who have more developed national markets and a more efficient system of state authority. How deep the Ukrainian economy falls this time and how much the hryvnia devalues will largely depend on professionalism, speed of reaction, and coherence of the new team in power. There have been many indicators of the imminent economic recession lately, as well as its causes. On Wednesday, August 14, one of the most significant signs of impending disaster was recorded on the government debt market of the world’s largest economy, the United States: the yield on the shortest-term government bonds – the two-year ones – exceeded the yield on ten-year bonds. This phenomenon, which indicates that investors see more risk in the short term than in the long term, is called inversion. And this happened for the first time in the past eleven years. Over the past four decades, the inversion has always been followed by a recession, including the memorable year of 2008. In recent months, the key economies of the world – American, Chinese, and German – have faced a heap of issues. Harsh statements by U.S. President Donald Trump about the need to strengthen protectionism, impose duties on Chinese goods, and the possible withdrawal of the world’s largest economy from the World Trade Organization added fuel to the fire. The outbreak of the trade and currency war between Washington and Beijing led to a slowdown of Chinese economy growth to the lowest level since 2002. And since China is the largest buyer of German products, as well as goods from other EU countries, this connection began to pull our European neighbors into a recession. How deep the Ukrainian economy falls this time and how much the hryvnia devalues will largely depend on professionalism, speed of reaction, and coherence of the new team in power The economy of the European Union’s locomotive, Germany, from April to June fell by 0.1%. If this trend prevails in the near future, this will mean a recession. In the U.S. economy, despite Trump’s peppy statements, things have also been going not that well. Investor trust in the reasonability of leaders and the market’s ability to self-regulate has been undermined. Economists and bankers expect that in September the U.S. central bank will lower rates for the first time over a long period, and in 2020 a new decline will follow. According to the forecast by Morgan Stanley, if the Trump administration in the next six months raises by a quarter the tariffs on goods imported from China, the U.S. economy will definitely go into recession. Since any world economy carries a subjective component: a nervous reaction of market players and the public to the flow of negative news, the most vulnerable economies may start falling into the abyss at any moment. And the fall of key cards will lead to the entire house of cards being destroyed. And those are mistaken who believe that Trump and other incendiaries of the global financial crisis are unaware of what exactly they are doing. They all are. It is beneficial for politicians to pose as resolute super-machos in the eyes of their electorate. For example, Trump plans to be reelected for a second term in 2020. They expect that economic opponents, under their pressure, will surrender or retreat. Bankers and businessmen expect new opportunities and new wealth from the coming crisis. Meanwhile, the real losers will be the middle class and the poor, as always. And this wave will hit Ukraine, too. How will this be happening? Memories of the alarming fall of 2008 will help predict future troubles. According to the classics of the development of any economic crisis, at first, global market prices for raw commodity products began to fall. In our case, it was for ore and metals, which constitute a significant part of Ukrainian exports. Sensing the trouble, non-residents began to sell government bonds that were held in their portfolios, change hryvnia to currency, and withdraw it. And then the rate fell: the national monetary unit slid from UAH 5.6 per dollar in September 2008 to UAH 7 in November and UAH 10 on the eve of 2009. Then, however, the rate rebound to the level of UAH 8.3. The National Bank squandered a significant portion of foreign exchange reserves in an attempt to maintain a falling exchange rate, but these attempts had limited influence. Many Ukrainians, especially those who foolishly took foreign currency loans in the best years, recall those times with a shudder. For some of our compatriots, reaching a pre-crisis level took a decade, and some still have not been able to recover from the fall of 2008-2009 In 2009, Ukraine’s gross domestic product fell in dollar terms by 36%, inflation exceeded 22%, salaries fell, many lost their jobs, banks stopped providing lending and financing mortgages, real estate prices fell, which led to a freeze on construction of more than 80% of projects. Many Ukrainians, especially those who foolishly took foreign currency loans in the best years, recall those times with a shudder. For some of our compatriots, reaching a pre-crisis level took a decade, and some still have not been able to recover from the fall of 2008-2009. There were, of course, few of those who ultimately won and acquired a great fortune as a result of the opportunities that opened up, and possibly got into the class of young oligarchs. But these were only a few against the background of an impoverished mass. Ten years ago, the Ukrainian economy fell more than most countries of the world, and Ukrainians were being impoverished at a faster pace than citizens of more developed countries. The reasons for this phenomenon are well known: a high export orientation of the national economy, its weak diversification, and a significant excess of imports over exports. But the main reason was the inability of the country’s politicians and government executives to effectively confront the crisis. President Viktor Yushchenko got involved in a public confrontation with Prime Minister Yulia Tymoshenko. Everyone wanted to improve their position for the 2010 presidential election and everyone wanted to drown a competitor. The National Bank and other government agencies were drawn into this desperate senseless war. Many may recall Tymoshenko’s populist initiatives to distribute a thousand hryvnias to depositors of the Soviet Oschadbank, which led only to inflation. Then it seemed that for their tactical reasons, both the president and the head of government deliberately go to aggravate and worsen the situation. One of the most prominent US presidents, Abraham Lincoln, in 1858, several years before the outbreak of the Civil War, making a reference to one of the evangelists, said: "A house that is divided in itself will not stand." This is exactly what happened ten years ago in Ukraine. As a result, as you remember, both Yushchenko and Tymoshenko flew past the presidency. And the triple-accused Donetsk “professor” Viktor Yanukovych came to power, and Yulia Vladimirovna was sent to prison for a gas deal with Vladimir Putin. We all know how it all ended. Our neighbors in Poland showed a completely different example in the same period. With the correct and coordinated work of the state machine and businesses, as well as with support of the European Union, they managed to prevent the country from slipping into recession. In 2008, Poland’s GDP growth rate fell to 5.1%, and in 2009 – to 1.8% from 6.8% in the pre-crisis year of 2007. For comparison, in 2009, the decline in Ukraine’s GDP amounted to 14.8$. Significant work on economic reform, attracting private investment, increasing labor productivity and facilitating the working conditions of businesses, done by the Poles in the years preceding the crisis, has paid off. Unfortunately, Ukrainian politicians were not ready for a historical challenge, and flushed everything down the drain of political confrontation and the economic crisis. After the July snap parliamentary elections, President Volodymyr Zelensky received a unique opportunity to synchronize actions of all branches of the Ukrainian government. Elections allow forming a pro-presidential majority in the Verkhovna Rada and appointing a government of professionals supported by this majority. With the formation of a new Cabinet of Ministers in late August and early September, a new team will stand at the helm of the national economy, so the country’s survival in the context of an impending crisis will depend on their professionalism. Of course, this will be a serious test for the new generation of Ukrainian managers. Ukraine is entering stormy waters. And we can get through them only with a well-organized team of anti-crisis managers who understand what must be done, and how One of the most realistic candidates for the post of new head of government, Oleksiy Honcharuk, in 2008 was 24, President Zelensky was 30, while the candidate for the post Parliament Speaker, Dmytro Razumkov, was 25. All of Ukraine’s young leaders, of course, remember those days really well so they can do personal analysis of mistakes of made by the country’s former top managers and draw conclusions. Also, they can complement this analysis with an appeal to the experience of our more successful neighbors. Ukraine is entering stormy waters. And we can get through them only with a well-organized team of anti-crisis managers who understand what must be done, and how. Obviously, the first steps of the new government should be a set of measures to stimulate the economy, resume cooperation with the International Monetary Fund, actively sell state property, open barriers to the entry of foreign private businesses, develop entrepreneurship at the national level, and launch the land market. The new Cabinet of Ministers together with the Ministry of Finance and the National Bank should clarify the program of working with the state debt and minimizing threats in other critical areas. Because the first bells of an upcoming crisis, as we know, start ringing with the sale by non-residents of Ukraine government domestic loan bonds. Incidentally, this week, foreign investors holding in their portfolios bonds worth UAH 81 billion, frightened by prophecies about the impending crisis, suspended further bond purchases. There’s only one step left before they start selling. And finally, new authorities in Ukraine shouldn’t forget Lincoln’s words about the "divided house," which has no chance of standing through the storm. And the storm is just around the corner. Yuriy Kulikov

Read more on UNIAN: https://www.unian.info/economics/10652562-global-economy-on-the-verge-of-recession-how-deep-will-ukraine-fall.html

Thanks in Advance,
Sincerely
Ajay

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