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Ukraine economy shrank 7.5% in 'worst year since WWII'

[KIEV] Ukraine's central bank chief said on Tuesday that the strife-torn country's economy contracted by 7.5 per cent in 2014 while inflation soared in a year more painful than any since World War II.

But Valeria Gontareva said the pro-Western leaders who rose to power in Kiev after the February ouster of an unpopular Moscow-backed president were optimistic about the chances of a rebound in 2015.

Ms Gontareva's comments came a day after parliament approved an austerity budget that should help unlock emergency assistance from the International Monetary Fund and other global lenders within the next few months.

The central bank head - criticised in the media for following IMF advice and allowing the hryvnia currency to depreciate by about 50 per cent - said the annual inflation rate had reached 21 per cent by the end of November.

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"No matter how sad it may sound, we have to say things as they are: our GDP fell by 7.5 per cent and the currency's devaluation reached 50 per cent," Ms Gontareva said.

The government had earlier projected growth to shrink by up to five additional per cent in 2015.

"Our country has not lived through such a difficult year since at least World War II," Ms Gontareva told reporters.

"I think that what we have experienced this year will never happen again. Without question, we are looking forward to 2015 with optimism."

Ukraine's reserves more than halved in 2014 and dipped to less than US$10 billion for the first time in five years as the authorities sought to prop up the hryvnia and fund their eight-month campaign against pro-Russian rebels in the industrial east.

President Petro Poroshenko said this month that the war was costing Kiev more than 100 million hryvnias (US$6.3 million) a day.

The central bank's eventual decision to let the hryvnia float feely saw the currency slip from 8.24 to the dollar at the start of the year to 15.82 on Tuesday.

Chronic shortages of dollars and euros in retail banks have forced the government to impose stringent currency controls that slap limits on daily cash withdrawals and exchanges.

The hryvnia and the Russian ruble have both lost about their half and turned into the year's two worst performing currencies in the world.

The ruble's depreciation has accelerated with the plunge in the global price paid for Russia's vital oil and natural gas exports.

But Russia has also been hurt by waves of US and EU sanctions imposed over the Kremlin's annexation of Crimea and alleged support for the eastern revolt.

Kiev rejects the Kremlin's denials of involvement and accuses President Vladimir Putin of trying to break his western neighbour apart.

Ms Gontareva took the unusual step on Tuesday of admitting that she was "as a person, very happy to see what is happening to the Russian ruble".

But she added that the ruble's slide also made Ukrainian exports more expensive to Russian consumers and therefore hurt the country's businesses.

"In the past 11 months, Russia's share of our foreign trade has held steady at 21 per cent," Ms Gontareva said.

Ukraine's trade with the European Union is about equal to that with Russia.

It is expected to grow in the years ahead as Kiev looks to develop develop with Europe in the wake of this year's signing of a landmark EU trade and political association pact.