Page last updated at 14:57 GMT, Thursday, 16 July 2009 15:57 UK

Ukraine's economy 'to shrink 15%'

Gas pressure guage
Ukraine has accumulated debts related to Russian energy supplies

The World Bank has downgraded its economic forecast for Ukraine again, predicting that the country's economy will contract by 15% this year.

In April, the bank had predicted the economy would shrink by 9% in 2009, which was also a downgrade from its original forecast of a 4% contraction.

The economic downturn has hit the price of metals worldwide, and Ukraine relies heavily on this sector for exports.

The World Bank now predicts a gradual recovery starting in 2010.

"The situation has deteriorated the most seriously in the public finances," said the World Bank's head economist for Ukraine, Ruslan Piontkivski.

He added: "The fall in GDP has led to a reduction of income without which expenses are not going to be revised. All this increases the risk of the budget deficit."

The country's budget deficit is expected to be 6.5% of GDP this year, before falling to 4.2% next, he said.

Analysts argue Ukraine is too dependent on a limited number of heavy industries - such as metal production - making it more vulnerable when foreign demand slows.

The economic contraction has also exacerbated diplomatic problems with Russia, since Moscow is worried about how Kiev will be able to find the funds to pay for significant debts owed on energy supplies.

A dispute in January between Russia and Ukraine - a key transit nation for energy - over gas supplies caused tensions in Europe, which is heavily dependent on such fuel.

On Friday, the EU will hold negotiations with Kiev, Moscow and international lenders to try to prevent a repeat crisis.



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