In May 2011, the Ukraine economy started regaining its footing from March-April weaknesses. Industrial production growth picked up to 8.6% yoy from 4.9% yoy in April. Expansion in retail trade and construction accelerated to 15.5% yoy and 13.2% yoy, respectively, over the first five months of the year. These improvements signal a growing contribution of domestic consumption and investments to real GDP growth in 2Q 2011.
At the same time, a rapidly widening current account deficit will exact a toll on economic growth. Hence, despite a strong real GDP increase of 5.3% yoy in the first quarter of the year, our real GDP growth forecast remains unchanged at 4.5% yoy for 2011.
At the beginning of June, the Ukrainian authorities showed a firm determination to revive the IMF program by submitting a revised pension reform bill to the parliament. While the new version of the bill maintains the most painful and highly unpopular measures of raising the pension age for women and capping maximum pension benefits, the reform was passed by the parliament at the beginning of July. The approval of a pension reform bill increases the likelihood of IMF program resumption in the coming months.