Economic Policy and Development

What Happened to Economic Growth in Ukraine after the Orange Revolution?

After a record growth rate of 12.1% in 2004, the Ukrainian economy slowed down to 5.4% in the first quarter of 2005 and is not expected to grow faster for the rest of the year. Such a downturn of the growth performance is a bad start for the new Ukrainian government, especially in view of the forthcoming parliamentary elections in the spring of 2006. Many observers, both domestic and foreign, blame the government for the weak growth performance of the economy: a lack of strategy and unity within the government, low transparency and populism in government decisions resulted in a range of policies that worsened the business environment and stifled investment in the economy. This paper will discuss the causes of the economic slowdown in Ukraine in 2005. The paper starts with an overview of growth performance in 2004 and in the first quarter of 2005. This is followed by a discussion of the reasons behind the slow growth and investment collapse; in particular, tax changes, price controls and reprivatization. The paper concludes with an outline of the prospects for investment climate in the nearest future and recommendations for the government on how to improve those prospects. Full report