Ukraine: Crisis-hit economy returns to growth in Q1
June 2, 2016
Ukraine’s crisis-hit economy returned to growth in the first quarter of 2016 after over two years of shrinking output. According to a preliminary estimate released by State Statistics Service Ukraine, GDP increased a meagre 0.1% over the same period last year. Although the reading was a significant improvement from the 1.4% contraction tallied in Q4, the result was below market expectations and was partly driven by base effects as the economy plummeted 17.0% in Q1 2015. Nonetheless, the reading suggests that the economy is on a recovery path after contracting almost 10.0% last year.
As good news surrounding the economy continues to trickle in, the International Monetary Fund gave a preliminary green light for fresh funds for the country, allaying fears of possible further delays. Negotiations over the budget and a drawn-out political stalemate that resulted in Volodymyr Groysman taking over as Prime Minister had postponed a USD 1.7 billion tranche of funding, jeopardizing the government’s finances. The funds, which will likely be distributed in July, are contingent on a number of reforms including measures to reform the state-owned enterprise sector, improve transparency and fight corruption. Importantly, it appears that, for now, the government will comply with IMF reforms and that the political turmoil that plagued Ukraine earlier this year is now in the past. Alexander Valchyshen, Head of Research at Investment Capital Ukraine, adds:
“Groysman likely will retain Yatsenyuk's middle-of-the-road political-economic views, avoiding extremes, and resume the IMF program, albeit under more nuanced negotiations. We do not support the view that casts doubt on Groysman's proreformist credentials. Instead, we expect him to grasp and deal with economic issues both quickly and progressively. […] As Groysman's administration has one year of immunity from a no-confidence vote in the parliament, he will have from 2Q16 to late 3Q16 until dirty politics continue in the fall as is routine before elections.”