(Recasts, adds quotes, details on economic crisis)
By Yuri Kulikov
KIEV, Jan 4 (Reuters) - Ukraine's economy is likely to contract by up to 5 percent this year but should be able to withstand a rise of up to 40 percent in Russian gas prices, a senior presidential official said on Sunday.
"In 2009 it is my view that it (the GDP change) will be minus 3.0 to minus 5.0 percent, unfortunately," said Oleksander Shlapak, chief economic aide to president Viktor Yushchenko, though he still expected growth in gross domestic product for 2008.
"There are not statistics yet (for 2008) but my feeling is we will get 1.8 percent growth, somewhere between 1.5 and 2.0 percent," Shlapak said in an interview.
Plummeting world demand has hammered Ukraine's steel and chemicals industries -- which together account for more than half of exports -- and popped a domestic consumer boom, while Ukraine's hryvnia currency has tumbled in recent months.
A Reuters poll of 10 analysts last month showed an average forecast for 2009 GDP of minus 3.1 percent, while the World Bank has forecast GDP will contract by 4 percent in 2009. If the economy contracts, it would be the first time since 1999.
The hryvnia began slipping against the dollar in September as foreign investors pulled out funds, and continued its slide amid a fast-widening current account deficit and a sharp fall in exports.
With the economy facing the deepest recession in at least a decade and investors focused on the current account deficit, some analysts say Ukraine can ill afford the major hikes in gas prices that Russia is demanding.
GAS CRISIS
Russia's state-controlled gas company Gazprom cut natural gas supplies to Ukraine on New Year's Day in a dispute over 2009 prices and gas debts which Russia says have still not been fully paid.
Moscow-based Gazprom initially offered Ukraine a price rise to $250 per 1,000 cubic metres (tcm) for 2009, but is now saying Ukraine should pay as much as $450 per tcm.
Ukraine's gas company said the maximum it could afford is $235 per tcm and only if Russia paid it more for the transit of Russian supplies to Europe.
Shlapak, who is also first deputy chief of staff, said if prices were raised to $250 per tcm in 2009 from $179.5 in 2008 then transit fees should more than double to $4.0 from $1.7 per tcm over 100 km.
He said a gas price rise to $250 per tcm would be unpleasant for the Ukrainian economy but it could still survive.
"For us the price $250 would be tough medicine but we would endure it," he said. "I am convinced the Ukrainian economy will withstand this price."
Shlapak said Ukrainian industry already pays about $380 for gas after tax and transport are included and that a rise in Russian gas prices could feed through to higher heating bills and domestic prices for energy.
"We should have done this long ago but we were not ready psychologically," he said.
Analysts say Ukraine's political leaders would likely be loath to have to explain to voters and companies that their gas or heating bills would have to rise as they gear up for a presidential election in 12 months. (Writing by Guy Faulconbridge and Sabina Zawadzki; Editing by David Holmes)