Ukraine: Growth gains steam in Q4 2018
March 22, 2019
Comprehensive national accounts data released by the State Statistics Service of Ukraine on 22 March confirmed that growth shifted into a higher gear at the end of 2018. GDP rose 3.5% in annual terms in the fourth quarter, a notch above the preliminary estimate (previously reported: +3.4% year-on-year) and up markedly from the 2.8% increase in the previous quarter. For the year as a whole, the economy grew 3.3% on an annual basis, marking the strongest expansion in seven years and accelerating from the 2.5% expansion logged in 2017.
The acceleration in growth came chiefly on the back of improving dynamics on the external front, although domestic demand remained firmly in the driver’s seat of the overall expansion in the fourth quarter. Private consumption rose 8.5% year-on-year in Q4, down from the Q3’s upwardly revised 11.7% increase (previously reported: +9.7% yoy), and was seemingly driven by growing wages and pensions, a strong hryvnia and higher remittances. On top of that, fixed investment growth remained in double-digit territory, increasing 10.2% year-on-year in Q4, down slightly from Q3’s 13.2% expansion (previously reported: +9.3% yoy). Meanwhile, government spending slipped again in Q4, falling 2.4% in annual terms in the quarter; that said, it improved significantly from the 6.6% drop in Q3 (previously reported: -6.6% yoy), which had marked the largest contraction in seven years.
Turning to the external sector, metrics improved considerably in Q4 following a particularly weak third-quarter performance. Exports rose 0.4% in annual terms in Q4, rebounding from a 4.9% drop in Q3 (previously reported: -5.2% yoy) as strong demand from the EU and other trading partners more than offset weaker demand from Russia. Furthermore, import growth decelerated to 2.8% year-on-year in Q4, from 4.6% in the previous quarter (previously reported: +5.1% yoy), likely reflecting a cooling in consumer demand. As a result, the external sector continued to drag on growth in Q4, subtracting 1.4 percentage points from the overall expansion. Nevertheless, this marked an improvement from the previous quarter’s result when the external sector subtracted 3.7 percentage points.
On a quarter-on-quarter basis, the economy expanded a seasonally-adjusted 1.1% in the fourth quarter, up from the previous quarter’s 0.4% increase and marking the strongest reading since Q1 2017.
Commenting on short-term outlook for the Ukrainian economy, Yulia Kuntsevych, an analyst at Moody’s, emphasized an expected slowdown in growth this year, chiefly due to Presidential elections, saying:
“Elections in Ukraine historically cause political instability. The recent war with Russian Federation, resulting in the annexation of the Crimean Peninsula and occupation of parts of Eastern regions of Ukraine, slowed down growth in the country during the last 3 years. The 2017 - 2018 snapshot showed first signs of recovery in Ukraine, while in 2019 growth in GDP and inflation, is expected slowdown on a year-to-year estimate.”
Author: Almanas Stanapedis, Research Team Manager