Henry Kirby in London -

A recent note by Ukraine-based investment firm Concorde Capital paints a worrying picture for the near future of Ukraine’s struggling economy.

Currency weakness, inflation levels, as well as contractions in industry and manufacturing output have all worsened in 2015, following already poor figures in the final months of 2014.

Since the beginning of the year, the hryvnia’s official rate has fallen against the dollar by more than 1.5 times, or by UAH9.79, to UAH26.05 per dollar.

An inflation forecast of 26% – up from an initial 13.1% – means that a nominal GDP increase of 20% on year will still see the overall economy of Ukraine shrink by 7% in real terms this year.

The decrease in overall output is not, however, solely attributable to inflation. According to the State Statistical Service of Ukraine, the fourth quarter of 2014 saw a year-on-year contraction of 15.2% in GDP – a figure which excluded the Crimea, Donetsk and Luhansk areas, which are still mired in conflict despite the recent signing of a ceasefire agreement between Ukraine and the pro-Russian separatists.

Industrial production in Ukraine also saw a January fall of 21.3% on year, following December’s 17.9% year-on-year fall. Month-on-month figures in January present an even direr picture, with industrial output contracting by 19.7% – a massive worsening from the 2.1% month-on-month contraction seen in December.

The ominous outlook for Ukraine comes at a vulnerable time for the ex-Soviet republic. As the bne:Chart below shows, foreign exchange reserves are dangerously low, currently well beneath the minimum recommended level of three months of import cover.

Increasing levels of indebtedness are also a serious cause for concern, with gross external debt for the last quarter of 2014 at 82.9%. This figure will only increase in the first months of 2015, as a recent agreement between Kyiv and the International Monetary Fund over a $40bn funding package demonstrates.