Ukraine: Growth falls to near four-year low in Q4 2019
March 20, 2020
GDP growth fell to 1.5% year-on-year (yoy) in the fourth quarter of last year (Q3: +4.1% yoy), marking the weakest expansion since Q1 2016, according to a preliminary estimate by Ukraine’s Statistical Institute. On a quarter-on-quarter basis, the economy flatlined in Q4, down from a 0.6% expansion in Q3.
Domestic demand growth was held back by destocking and a steep fall in government spending (Q4: -6.8% yoy; Q3: +2.1% yoy) in the fourth quarter of last year. Nevertheless, private consumption growth accelerated to 11.7% (Q3: +10.2% yoy) on the back of receding inflation, while fixed investment growth jumped to 18.6% (Q3: +13.2% yoy) amid confidence on President Volodymyr Zelensky’s commitment to reform and secure a deal with the IMF.
The external sector weighed on growth in Q4 2019, subtracting 0.2 percentage points from overall growth, contrasting a 1.5 percentage point contribution made in Q3 2019. The downturn reflected a mark slowdown of in export growth (Q4: +3.1% yoy; Q3: +12.7% yoy) against the backdrop of a marked appreciation of the hryvnia and downbeat agricultural and industrial output. Meanwhile, import growth decelerated to 2.4%, from 7.3% in the previous quarter.
The economy is seen sustaining a solid rate of expansion this year. Fixed investment is seen expanding at a solid pace on the back of cheaper financing conditions, while a tightening labor market should shore up household spending. However, backtracking on the reform agenda may put IMF support at risk this year, ahead of hefty debt repayments.
Author: Nicolás J. Aguilar, Economist