Ukraine: Macroeconomic Developments and Structural Change with a Special Focus on the Energy Sector

Major traits of Ukraine’s macroeconomic and structural development since the turn of the millennium constitute the focus of this study. Following a brief look back at the decade-long recession of the 1990s, the authors identify positive terms-of-trade shocks, the cumulative effect of structural reforms and the strong recovery of domestic demand as the underpinnings of the country’s robust economic recovery of 2000–2004, while a halt, respectively reversal, of terms-of-trade gains and a deterioration of the investment climate are regarded as the driving forces of the sharp slowdown of 2005 and early 2006. Fiscal policy and tax reforms, monetary and exchange rate policies, and the evolution of external accounts are analyzed in more detail. Given Ukraine’s extremely energy-intensive economic and export structure and concomitant vulnerability, energy and gas sector developments are given prominence on the structural front. A near-term economic outlook wraps up the study.