* Economists predict deeper recession than a month ago * IMF aid will only halt currency's slide * Most IMF money will be used to repay foreign debt * Uncertainty over elections will also hit economy By Natalia Zinets KIEV, May 7 (Reuters) - Ukraine's economy will slide deeper into recession this year despite an IMF aid deal as a pro-Russian rebellion cripples activity in the industrial east and scares off foreign investors, economists forecast in a Reuters poll. The central bank said on Wednesday that Ukraine had received a first installment under the International Monetary Fund's $17 billion two-year programme. But the economists predicted this would do little more than stabilise the hryvnia currency, which has fallen by almost third against the dollar this year, and most of the IMF money would be used to repay foreign debt rather than rebuild reserves. "At the moment there is no hope for a quick resolution of the situation in the east. So the prospect of worsening GDP and industrial output forecasts will continue," said Anatoly Baronin of analytical group Da Vinci. In the survey of 12 banks and brokerages taken over the last week, the median forecast was for GDP (gross domestic product) to fall 4.3 percent this year. That marked a deepening pessimism from last month's Reuters poll which predicted the economy would shrink 3.2 percent in 2014, following a flat performance last year and minimal growth of 0.2 percent in 2012. Ukraine's economy has already been weakened by years of mismanagement and corruption. But the country now faces the threat of civil war as Kiev forces try to crush separatists in the largely Russian-speaking east, while fears are rising that plans for a presidential election on May 25 could be derailed. Economic activity has been badly disrupted in the east where the Donetsk and Luhansk regions, at the heart of the movement to gain independence from Ukraine, contribute about 16 percent to national GDP in normal times. In the town of Kramatorsk, staff at four machinery construction plants have not been able to get to work for weeks after separatists blocked public transport routes with barricades of tyres, felled trees and rubbish bins. In the port of Mariupol, militants set a bank branch on fire, while in Donetsk city itself, shops have been burgled and company offices smashed up. In the rebel stronghold of Slaviansk, normal life has all but stopped - local media reported the bakery had halted work. Ukraine's slide is expected to accelerate this year. The economists forecast GDP would fall 3.2 percent year-on-year in the second quarter after a 1.1 percent drop in the first. BANKS CLOSE Ukraine's largest bank Privatbank has closed branches in Donetsk and Luhansk, saying it can no longer carry out cash transactions due to rising crime. Some branches of Raiffeisen Bank Aval, a subsidiary of Austria's Raiffeisen Bank International, have also been closed. Kharkiv, capital of a third eastern region that contributes about 6 percent to Ukrainian GDP, has also been hit by unrest. Violence has spread to the southern port city of Odessa, which accounts for 4 percent of GDP, and fighting there on Friday led to the deaths of more than 40 people. In the poll, analysts revised their median forecast of industrial output this year to a fall of 4.8 percent from a 3.8 percent drop last month. The arrival of the first $3.2 billion installment from the IMF, $1 billion of which went into the central bank's foreign currency reserves and the rest to the state budget, has brightened the currency outlook only marginally. According to the median forecast, the hryvnia will end this year at 11 to the dollar, slightly stronger than the current rate of about 11.9 but far weaker than 8.2 where it began the year. "The situation in the east and southeast of Ukraine creates more devaluation pressure," said Baronin. "These are not factors for the strengthening of the national currency. The IMF and other foreign lenders' support will only give an opportunity to stop the hryvnia fall." Ukraine's richest man, Rinat Akhmetov, has said he will continue investing in Ukraine and has no plans to sell his businesses in the east. However, analysts said the prospect for attracting foreign capital was very limited with the May 25 election, when Ukrainians are due to chose a successor to ousted pro-Moscow president Viktor Yanukovich, adding to the uncertainty. "The recession will be quite lengthy, and the electoral political cycle is among key factors," said Dmitry Fedotkin of VTB Capital. Analysts maintained their forecasts that central bank foreign exchange reserves will rise to just over $20 billion at the end of 2014, where they were a year earlier, after plunging more than $5 billion to $15.1 billion in the first quarter. According to the Ministry of Finance, the government should repay foreign currency debt of $9 billion during the period from April until the end of this year. "Almost all that Ukraine will receive from the IMF and the other international lenders will be spent for external debt repayments," said Fedotkin. "Only a relatively small amount can go into reserves." Below are forecasts for CPI inflation, GDP, industrial output, foreign currency reserves, the hryvnia and other indicators for Ukraine: Reuters polled analysts at Alfa Bank (Ukraine), Capital Times, CASE (Ukraine), Concorde Capital, Credit Rating, Da Vinci AG, Interbusiness Consulting, International Centre for Policy Studies, Prominvestbank, Institute for Economic Research and Political Consulting, Raiffeisen Bank Aval, VTB Capital. Median figures from the previous poll, where applicable, are given in brackets. median lowest highest govt 2013 f'cast CPI 2014 +12.1 +4.2 +17.0 +12.0 +0.5 (10.5) GDP Q2 (y/y) -3.2 -1.5 -5.5 N/A -1.3 2014 -4.3 -2.2 -6.7 -3.0 +0.0 (-3.2) Industrial output April (y/y) -5.3 -3.6 -9.0 N/A -2.2 2014 -4.8 -2.8 -10.0 N/A -4.7 (-3.8) Foreign currency reserves end-2014, $ 20.9 17.0 25.0 N/A 20.416 bln (20.4) Hryvnia/$ end-May 11.00 10.50 11.90 N/A 8.1139 end-2014 11.00 10.50 12.00 10.5 8.1508 (10.63) Trade -8.50 -5.70 -21.50 N/A -15.484 balance (-9.95) 2014, $ bln C/A balance -8.20 -5.00 -20.50 N/A -16.355 2014, $ bln (-10.00) Capital +8.50 +6.50 +12.70 N/A +18.378 account (+8.00) 2014, $ bln (editing by Elizabeth Piper and David Stamp)
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