KIEV, Aug. 2 ??“ Ukraine??™s economic growth will be slower than expected this year due to a weaker external demand for steel, high social payouts and a slowdown in investments, a government official said Tuesday.

The economy is likely to expand between 6% and 6.5% on the year in 2005, compared with 8.2% earlier expected, said Vadym Pishcheyko, the head of macroeconomic department at the Economy Ministry.

This is the first time that a senior government official admitted the economy had been seriously slowing down this year and the government had been working to revise the growth forecast.

???It is impossible to meet the original growth forecast this year,??? Pishcheyko said. ???The forecast will be revised.???

There were mounting signs of the economic slowdown since the beginning of the year, but government officials had so far been defending the original growth forecast.

The economy expanded 1.1% on the year in June, the worst performance over the past four years, slowing down from 3.6% growth recorded in May, according to the State Statistics Committee.

The economic growth in the first half of the year was reported at 4%, down from 4.7% reported in January-May, the committee said.

The economy has been slowing down this year due a dramatic decline in external demand for steel, which accounts for a third of Ukraine??™s exports, analysts said.

The steel sector was especially badly hit in May and in June, when several steel mills had been forced to shut operation following a massive cancellation of export contracts.

The turnaround in the steel sector was accompanied by falling steel prices on world markets due to increased supply after the commissioning of several giant steelmakers in China and India, analysts said.

But there were also domestic factors that had contributed to the slowdown, including a dramatic increase in social payments and a slowdown in capital investments, Pishcheyko said.

???What happened is a shift of money from industrial sector to the household sector,??? Pishcheyko said, referring to the government??™s move to increase pensions and other social payments this year.

The capital investments slowed amid widespread talk of a possible re-privatization action against those owners that had apparently used corrupt links to the previous government to gain the assets.

But in June President Viktor Yushchenko, Prime Minister Yulia Tymoshenko and Parliament Speaker Volodymyr Lytvyn signed a declaration assuring investors that there will be no re-privatization action.

Pishcheyko said the government still sees consumer inflation at 9.8% in 2005, which is in line with the government forecast, despite recent increase in gasoline prices. (tl/ez)