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"Ukraine has been suffering from the loss of the industrial Donbas region since last year. But it looks like the country has managed to adjust to it. Soon the double-digit fall in production output will be left behind," Dmytro Boyarchuk of the economic research organization CASE Ukraine, said, according to Reuters.

Ukrainian industry was already shrinking before the conflict. In June 2012, output dropped by 1.4% due to a weak external demand for steel, one of Ukraine's key export commodity.

The military conflict with Russian-backed separatists in Donetsk and Luhansk regions, where the majority of coal mines and metals plants are located, worsened the situation last summer. In July 2014, industry shrank by 12.1% year-on-year and in August the contraction deepened to 21.4%, according to the report.

The authorities in Kyiv say the country has lost about 20% of its industrial capacity due to ongoing hostilities in Ukraine’s east. A ceasefire, negotiated in February, gave a fragile hope for the peaceful solution of the conflict, despite almost daily violations.

"Since then, there has been some recovery of production. In particular, steel ... The dramatic collapse in the industry happened last summer along with the intensification of military actions in the eastern region," Reuters quoted Oleksiy Blinov at Alfa Bank Ukraine as saying.

As Ukraine’s industrial sector accounts for about 35% of the country's gross domestic product (GDP), its improvement along with a record high grain harvest expected this year should lead to an economic upturn, analysts suggested.

The year-on-year fall in GDP is expected to slow to 3.5% in the fourth quarter against 7.0% decline expected in the third and 14.8% estimated for the second quarter.

"The Ukrainian economy may begin to exit from the recession, which has lasted for six consecutive quarters, provided the situation in the east does not significantly deteriorate," Olena Bilan of Dragon Capital said.

However, the recovery will take much longer time than after the crisis of 2008-2009, she added.

The war with Russian-backed separatists is deterring foreign investment, while Ukraine's banking system - hit by capital outflow – does not have the resources for lending. The purchasing power of the population has also declined due to currency depreciation, an increase in utility prices and a public sector pay freeze, Reuters reports.

Ukraine's rate of inflation is expected to reach as much as 48.2% this year, down from the 56.8% analysts forecast in July, according to the poll.

The International Monetary Fund says it expects Ukraine’s GDP to grow by 2.0% next year on the back of a 9.0% decline in 2015, but adds that further conflict and the possibility of protracted debt restructuring talks still pose "exceptionally high" risks to efforts to restore financial stability.

FM-TV

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