Ukraine is set to push off on a long growth cycle starting in 2016. Despite the difficulties stemming from substantial territorial and economic losses, Ukraine may still deliver positive surprises over the mid-term. The broad economic picture has improved materially – we see GDP growing 1.5% in 2016 after more than a 10% decline in 2015, and inflation may slow to 15% by end-2016 from a peak at 61% in 2015. The hryvnia is due to remain under pressure as the terms of trade deteriorate, but a possible depreciation of 10-15% vs. the USD is a far cry from 2014-15's 67% depreciation. On the fiscal side, Ukraine has managed to take firm control of its deficit; the budget shortfall is likely to come in below 3% of GDP in 2016E despite a major cut in social tax.

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