(Adds Ukraine steel industry details)
By Sabina Zawadzki
KIEV, Nov 12 (Reuters) - Ukraine's industrial output plunged
20 percent in October, the sharpest drop since early post-Soviet
days, highlighting a decline in world demand for the country's
key export steel and drawing it closer to a recession next year.
Ukraine agreed a $16.5 billion loan from the IMF as its
currency slumped to a historic low last month. But after the
output figures, analysts question whether that
higher-than-expected amount will be enough to stop Ukraine's
economy freefalling.
Political instability, almost constant since the 2004
"Orange Revolution" brought pro-Western politicians to power,
showed little signs of abating. President Viktor Yushchenko
acknowledged that a snap poll he called would not take place by
the end of the year and parliament sacked its chairman.
Data released on Wednesday showed industrial output plunging
19.8 percent year on-year. Coke production and oil refining fell
43.9 percent and metals production fell 35.6 percent.
"We have never seen industrial output falling month-on-month
in October," Valery Lytvytsky, top adviser to the central bank,
told Reuters. "In January, we will have not a technical, but a
fully-fledged recession in our industry."
The sharp downturn was led by the steel industry, the
world's eighth largest, which has been brought to its knees in
the past month as the global economic slowdown gathers pace.
Ukrainian producers reduced rolled steel output by 26.1
percent in October compared to September as global prices and
demand slumped, while pig iron production fell by 26.7 percent.
The economy has grown on average a robust 7 percent every
year since 2000, boosted by higher steel prices and domestic
demand as consumers began to get richer.
But the first decade after the collapse of Soviet rule was
chaotic -- gross domestic product lost over 50 percent of its
Soviet-era value. Hyperinflation and a currency crisis decimated
savings and plunged consumers into poverty.
Signs of discontent have begun to reappear. Companies have
begun making redundancies, wage arrears have risen significantly
and transport workers in Kiev have threatened to strike.
SEVERE PROBLEMS
The International Monetary Fund -- which has just given
Ukraine the first $4.5 billion tranche from the standby loan -
said last week it saw the economy shrinking 3 percent next year
after predicting only a month earlier growth of 2.5 percent.
But politicians have been distracted by the battle between
Yushchenko and his former ally Prime Minister Yulia Tymoshenko.
He called an early parliamentary election in September,
abandoning efforts to form a new ruling coalition. The premier
opposed the election, pointing to the effects of the crisis.
The IMF loan was delayed for two weeks as Tymoshenko's
supporters in parliament blockaded the chamber to denounce any
attempt to link a package of anti-crisis measures, needed to
secure the IMF funds, to financing for the election.
On Wednesday, parliament voted to dismiss its chairman and
ally of Yushchenko, Arseniy Yatsenyuk, but not before some
members engaged in fistfights, breaking a glass panel.
"I'm not sure if the government and parliament are realising
the severity of the economic problem," said Zsolt Papp, chief
economist at KBC Investment, adding he would consider lowering
his 2009 economy forecast from a current "stagnation" scenario.
"If this (output) number becomes the established trend, then
questions will arise whether the $16.5 billion package will be
actually enough. The data puts the whole Ukrainian situation in
a completely different light."
Ukraine requested the loan from the IMF as the hryvnia,
weighed down by a fast-expanding current account deficit,
plunged to a historic low of 7.05-7.2 to the dollar. Yushchenko
said imports should be cut to help the deficit.
"We can live without expensive foreign cars, television sets
and household appliances ... We must protect the national
economy," he told a meeting of businessmen and bankers.
(Additional reporting by Natalya Zinets; Editing by Ruth
Pitchford)
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