November 7, 2019 / 9:36 AM / 3 months ago

POLL-Tepid industry is likely to impede Ukraine's plans for growth

* Industrial output full year poll data reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=U reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=UACPIAPAINDAP

* GDP full year poll data reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=U reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=UACPIAPAGDPAP

* CPI full year poll data reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=U reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=UACPIAPACPIAP

By Natalia Zinets

KIEV, Nov 7 (Reuters) - A tepid performance by Ukrainian industry, which accounts for more than a fifth of the country’s gross domestic product, is likely to obstruct the government’s plans to speed up growth next year, a Reuters poll of analysts showed on Thursday.

Analysts see industrial output accelerating to 2.0% in 2020 compared with 0.3% this year, thanks to growing domestic demand and a modest improvement in access to bank loans.

But the expected growth will underperform the economy as a whole, which is expected to grow 3.1% in 2019 and 3.2% in 2020, bolstered by a high grain harvest. It grew 3.3% in 2018.

President Volodymyr Zelenskiy’s new government is targeting an annual growth rate of 5% to 7% through an ambitious programme of reforms, privatisations and anti-corruption efforts. It sees growth next year at 3.7% to 4.8%.

Ukraine’s economy plunged into a recession after Moscow’s annexation of Crimea in 2014 and a Russia-backed separatist conflict in the eastern Donbass region tipped the country into crisis.

Industry struggled to grow after losing the Russian market in 2014, said Alexander Paraschiy of the investment bank Concorde Capital.

In addition, tight monetary policy held back the modernization that Ukrainian companies need to become competitive in new markets.

Inflation rocketed above 43% in 2015 and remained at two-digit levels until 2018. The central bank imposed a tight monetary policy, making bank loans expensive.

The central bank began cutting rates in April as inflation eased, but the key rate remains at 15.5%.

“Lowering the interest rate will have a stimulating effect on lending and economic growth,” the central bank said in remarks published on Monday.

Analysts forecast further rate cuts to 15.0% by the end of 2019 and to 11.0% by the end of 2020 and for inflation to slow to 7.0% and 6.2% respectively, although they believe bank lending will remain modest overall.

“There will be no significant increase in real sector lending in 2020,” said Hanna Cherednychenko from the think-tank International Centre for Policy Studies.

The government has promised to raise salaries in state jobs, which should stoke demand. But corruption and the opaque structures of many businesses continue to make banks reluctant to lend, she said.

Ukraine’s economy lags many of its eastern European peers, such as neighbour Poland, a European Union member. In 2018 Ukraine’s GDP per capita stood at about $3,000; Poland’s was five times higher. (Editing by Matthias Williams, Larry King)

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