Ukraine GDP Q4 2016


Ukraine: Growth surges in Q4 but economic blockade sours outlook

March 22, 2017

Ukraine’s recovery continued to gather momentum in Q4, benefiting from a low base of comparison and an improved internal environment. GDP in Q4 expanded 4.8% on a year-on-year basis, up from the 2.3% figure registered in Q3 and marking the highest growth rate in five years. Q4’s reading came in a notch above the preliminary estimate of 4.7% growth.

Looking at the details, booming fixed investment continued to support the visible firming of economic activity in Ukraine. Fixed investment soared 27.1% over the same period of the previous year, marking the best result in recent history (Q3: +23.9% yoy). The surge is largely due to greater political stability within the crisis-hit economy, the rebuilding of infrastructure and a revival in bank lending. The result also reflects an extremely low base of comparison. In contrast, private consumption slid from a 4.7% expansion in Q3 to 0.9% growth in Q4, as high unemployment and the aftermath of the recession weighed on household spending. Government consumption also deteriorated, falling 2.2%—the largest contraction since Q2 2015.

The external sector subtracted from growth in the fourth quarter, although to a lesser extent then in the previous period. Exports rebounded and grew 9.7%, supported by booming agricultural production. However, imports soared 19.6% to support investment, limiting the gains from external demand.

For the full year, growth came in at 2.3%, a profound improvement form 2015’s 9.9% contraction. While the fourth quarter’s result illustrated that the recovery shifted into a higher gear, recent developments are now threatening its sustainability. Tensions with the rebel-held eastern regions of the country are high and on 15 March, the government announced an economic blockade of the zones, escalating the political crisis and increasing already-heightened uncertainty even further. In the aftermath of the decision, the IMF postponed the country’s next tranche of fresh funds, citing that it needs time to assess the impact on Ukraine’s economic outlook.

The recent developments have led the National Bank of Ukraine to drastically revise its GDP forecast for this year. The Bank sees the trade ban subtracting 1.3 percentage points from growth, however, an improved outlook for the external environment partly limited the revision and the Bank now sees GDP expanding 1.9% this year (previously expected: +2.8%). FocusEconomics panelists are taking these latest developments into consideration and an updated Consensus Forecast will be released on 4 April.


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