Ukraine: Growth nearly halves in Q1 due to economic blockade
June 20, 2017
Ukraine’s recovery hit a roadblock in the first quarter, as tensions with rebel held areas stifled economic activity. GDP grew 2.5% over the same period last year, just over half of Q4 2016’s 4.8% increase. Q1’s result was a notch above the preliminary estimate of 2.4% growth and came on the back of slower investment growth and a drag from the external sector.
Looking at the details of the GDP release, the external sector dragged on growth in Q1 as exports swung to contraction. Exports fell 0.4%, which notably contrasted Q4’s 19.6% expansion. The downturn was largely due to an economic blockade of the rebel-held eastern regions, which started in the first quarter after rebel factions seized a number of Ukrainian companies located in their territory. The trade ban severed vital links in the country, including transport of coal and other industrial goods, which are vital inputs for the production of many Ukrainian exports. Meanwhile, imports also decelerated, growing 2.9% in Q1, after a notable 19.6% expansion in Q4 2016.
Despite the tense political environment, fixed investment growth continued to boom and grew a notable 20.1% in Q1 (Q4 2016: +27.1%). Behind the strong result is the rebuilding of infrastructure within the country thanks to both public and private projects. Private consumption continued to recover after the country’s stark recession and accelerated to 2.8% growth. Public spending also picked up and swung from a 2.2% contraction to a 4.2% increase.