Eurasian Integration Yearbook 2012

Viktor Ivanter, Valery Geets, Vladimir Yasinskiy, Alexander Shirov,and Andrey Anisimov. “The Economic Effects of the Creationof the Single Economic Space and Potential Accession of Ukraine”Customs Unionand the Single Economic SpaceUkraine, SES-3 and FTA, SES-4The baseline scenario for the development of the Ukrainian economy assumesthat the key trends of the economic development observed in recent years willcontinue.The main problem, which Ukraine is expected to encounter in the baselinescenario, is that, given the growing energy prices 4 , the necessary level ofcompetitiveness of producers can only be maintained if energy intensity isreduced in an accelerated manner. A radical reduction in energy intensityrequires, in turn, large investments. Revenue losses against the backdrop ofrising costs maintain the relatively low fixed capital accumulation rates. At thesame time, production growth is restricted because of the gradual retirement of“old”, idle capital. Therefore, the economy faces an acute problem of limitedcapital. Nevertheless, the remaining potential to achieve growth using ageingfacilities enables the Ukrainian economy to demonstrate higher economicgrowth than Belarus, which is experiencing an acute deficit of fixed capital.2011-2015 2016-2020 2021-2025 2026-2030Household consumption 6.1 5 4.3 3.6Government consumption 2.7 2.4 2 1.7Investments in fixed capital 11 8.5 7.2 5.1Export 4.1 4.1 4.2 4.3Import 8.4 7 5.7 4.3GDP 4.4 3.8 3.9 3.6Table 1.2.Average annualgrowth rates ofUkrainian GDPand the maincomponents of theend demand(in constant prices,%)Source: Calculationsby IEF RAS and IEFNASUIt should be noted that while the lack of significant changes to the structureof the economy causes a slowdown in economic growth, it is impossible toaccelerate the growth in output in exporting sectors. Ukrainian GDP in thebaseline scenario is expected to drop in the long term from 4.4% in 2010-2015to 3.6% in 2025-2030.As (in the scenario under consideration) Ukraine joins neither the EuropeanUnion Free Trade Area nor the Single Economic Space, slower growth in exportsis expected to have a significant effect on its economy as a whole.By 2030, the production of electric power is forecasted to increase by 30%to 276 billion kWh. Gas imports are forecasted to grow insignificantly to43 billion m 3 , 116% of 2010. This will be possible if gas is substituted by4A “window of opportunity” associated with the extension of various energy price discounts to Ukraine will unavoidablyclose following Russia’s transition to the principle of equal return on natural gas supplies to the domestic and foreign markets(in this scenario, taking place in 2015).Eurasian Development Bank27