At the end of August the country was informed about its consumer confidence, which has a significant impact on short and long term business planning. “The government’s intentions spoil the sentiments of Ukrainians. Ukrainians met the second month of summer 2010 with a collapse in the consumer confidence index by 10.7 points, to a level of 86.4. So consumer confidence index continues to fall for a second month in a row, after three quarters of consistent growth,” informed the International Center for Policy Studies that conducted research in conjunction with the GFK Ukraine. “The intentions to carry out a series of unpopular reforms, including price increases for energy and raising the retirement age, which the government was urged to do due to resume cooperation with the IMF, were given a cold reception by most Ukrainians. However, slowing the economic recovery of Ukraine together with the heat that threatens grain crops, prompted Ukraine’s population to more pessimistic economic expectations,” said the head of the social economy program of the International Center for Policy Studies Maksym Boroda.
The head of the research and analytical center FOREX CLUB Mykola Ivchenko also shares this view. He said to The Day that the decline in consumer confidence in Ukraine was associated with negative expectations of the population concerning the future harvest, a possible second wave of the crisis, and the government’s intentions to implement unpopular reforms. According to him, the assessment of the current financial situation also deteriorated by 1.3 points to 80.9 points. The population reduced its willingness to buy durable goods (furniture, appliances, etc.). “The growth of the inflation expectation index within the population during official deflation is a negative signal. This is a leading index and shows a possible acceleration of inflation in the fall-winter period. The increase of the unemployment expectations index indicates the deterioration of assessment in the employment sphere against the background of slowing the economic growth of Ukraine,” says the expert.
However, experts who have always supported the ideology of the so-called unpopular reforms, aware that they carry both benefits and threats, should not be surprised to see a negative reaction on behalf of the population. For instance, the leading expert of the Center for Social and Economic Research “CASE-Ukraine” Volodymyr Dubrovsky expressed the view that with the absence of radical economic reforms, improving the quality of the state governance, and reforming the municipal sector, Ukraine could even face the threat of default.
The head of the group of advisers of the National Bank of Ukraine Valerii Lytvytsky, however, is quite optimistic. He believes that August could be the fifth consecutive month of deflation or zero inflation. “If suddenly in August there is still inflation,” he said, “then it will be caused by the formation of ungrounded inflation expectations, in which the expert environment has recently participated.” According Lytvytsky, “the harvest which turned out to be less than predicted, is still large enough to guarantee the stability of food prices with significant carry-over stockpiles. In 2003 the harvest was really poor, but still (in August. — Author) we saw deflation,” reminds the expert, and emphasizes that there are no other objective reasons for inflation. The situation on the currency market is also stable: supply and demand are close to equilibrium, allowing the National Bank to abstain from operating on the market altogether. As Lytvytsky pointed out, even higher prices for natural gas should not cause inflation, because the share of this factor is small. The advisor to the head of the National Bank of Ukraine reminded that the significant increase in tariffs for public utilities by Yurii Yekhanurov in 2006, owing to the stable food prices, did not lead to inflation either. The optimist is also pleased that the balance of payments of Ukraine in July was closer to equilibrium. The expert notes that since the beginning of the year the country’s GDP grew by 5-6 percent, the real incomes of the population increased, arrears of wages only for July decreased by 13.5 percent, and the retail turnover for seven months rose by 3.9 percent.
Who will resolve the dispute between the optimists and pessimists? Clearly, the government must do this with its bold, principled, and consistent actions. Starting “unpopular” reforms, it should admit that they are necessary for the future prosperity of the country. For whichever way you look at it, the stage of structural reforms towards an efficient market economy cannot be avoided.
