Cabinet of Ministers revises 2008 macroeconomic forecasts

The Cabinet of Ministers of Ukraine yesterday revised its macroeconomic forecasts for 2008. The yearend consumer inflation forecast was increased from 9.6% to 15.3%, and the PPI projection from 19.2% to 24.6%. The nominal GDP forecast was upgraded from UAH 921.2 bln (USD 189.9 mln) to UAH 956.8 mln (USD 197.3 mln), while expected real GDP was left unchanged at 6.8% yoy in 2008. The projected trade deficit was expanded from USD 9.2 bln to USD 13.7 bln. According to Prime Minister Yulia Tymoshenko, the new forecasts allow the state to increase budget expenses by 13.1%, while Alexander Shlapak, deputy head of the Presidential Secretariat said that budget income could be raised by 13.9% to 18.6%. The budget is scheduled to be amended on June 17. Andrii Parkhomenko: The new macroeconomic forecasts look unrealistic and are probably politically motivated. If the current government is dissolved, it could pass the blame for sky-high inflation on the next government. Consumer inflation reached 14.6% YTD in May, pretty close to the government’s full-year forecast of 15.3%. The same holds true for PPI, which hit 24.2% YTD in May. We forecast CPI of 21.0% yoy and PPI of 33.0% yoy in 2008. However, given a robust outlook for agricultural and metallurgy exports, we are more positive on trade deficit; we believe it will reach USD 10 bln in 2008 (4.5% of GDP).