Recession in industry gradually slowing down

Today, only the production of tanks can revive economic growth

Photo: Reuters

The decline of Ukraine’s industrial production has slowed down. In September industrial output dropped 16.6% compared with September 2013, reported the State Statistics Service. In the previous months, however, industrial indicators displayed a trend towards a sharp decline. Furthermore, the decline doubled with each month: in May, industrial output dropped 2.1%, in June – 5%, in July – 12.1% and in August – 21.4%. Based on the results of nine months of 2013, the decline in industrial production was 8.6%.

Hostages of the situation

Ukrainian industry experienced the highest decline in July-August. During those months the infrastructure and industrial capacities in the Donbas suffered most from their destruction. Moderation of the conflict prevented their further destruction. However, at the moment there is not talk about restoration of operations of companies. In September, industrial output in the Donetsk oblast dropped 59.5%, while in August this figure was 58.7%. In the Luhansk oblast the decline in industrial production volumes in September remained at the same level of 85%. For instance, mines of the Coal Energy company in the Donetsk oblast produced 95.9% less coal than a year ago. The highest decline was observed in the production of coal – 57.4%.

Carmakers also reduced their output. Production of transport vehicles, trailers, semi-trailers and other means of transport dropped 40.6%, according to the SSS. Over nine months of 2014, 26,115 transport vehicles were manufactured, which is 21% less than in the three quarters of 2013, reported UkrAvtoProm.

Metallurgists are also experiencing hardships. Overall, their production dropped 28.3%. For instance, pipe mills reduced production of pipes from ferrous metals by 14.1% over the reported period. The decline was highest in this sector in September-August, in particular due to the suspension of production at Khartsyzsk Pipe Plant, which is located in the ATO zone.

The further we go, the worse it gets

The closer the winter approaches, the higher is the probability that the decline of industrial output will continue and not only due to the combat actions in the Donbas region. This year, the country is facing a gas reserve shortage for the heating season. Premier Arseniy Yatsenyuk announced that if the government fails to reach an agreement with Russia on gas supplies, Ukraine’s industrial companies will be forced to reduce consumption. “If we do not buy gas from Russia, we will need to substantially reduce consumption volumes, primarily in the chemical sector and heavy industry,” the premier stressed.

Problems in the energy sector may also arise due to the reduction of volumes of coal output, says Director for Economic Programs at the Razumkov Center Vasyl Yurchyshyn. “There are risks that over the next several months we will see a decrease of indicators in the housing utility services sector, in particular in electricity production. When the supply of coal decreases, output capacities are lower,” says the expert. The government already admitted to the problems with electricity production. “Of 155 mines in Ukraine, 83 are located in the areas seized by terrorists. This means there is not enough for the production of 30% of electricity required,” said Energy and Coal Industry Minister Yuriy Prodan.

Recovery prospects

A decline in industrial production has a negative impact on the volumes of cargo turnover in the transport sphere and the condition of wholesale trade. In addition to that, exports are sliding, thus reducing the volumes of hard currency earnings. “Moreover, industrial companies are downsizing their staff and transferring employees to part-time employment, which further reduces their real incomes,” reads the report of the International Center for Policy Studies (ICPS).

Analysts point out that returning the level of the industrial output at least to last year’s level is not possible at the moment due to the lack of financial means for reconstruction of the infrastructure in the Donbas regions, which was partially destroyed during the military combat. In view of this, the ICPS forecasts that the growth of industrial output year-on-year will be minus 11.8%.