Ukraine: Recovery slows for third consecutive period in Q3
December 20, 2017
Ukraine’s recovery remained weak in the third quarter as tensions with rebel-held areas and slow reform momentum continued to stifle economic activity. GDP grew 2.1% over the same period of 2016, below Q2’s 2.3% year-on-year increase. After peaking at 4.8% in Q4 2016, the recovery limped along in 2017, largely due to a trade blockade with the rebel-held eastern regions, which has cut vital links within the country. Q3’s GDP result matched the preliminary estimate.
Lackluster performances were seen in both the domestic economy and the external sector in Q3. Investment growth sunk to the slowest rate since Q1 2016, coming in at 15.8% annually (Q2: +23.7% year-on-year). While the economy has made progress since the height of its crisis, several IMF-mandated reforms to improve the business climate have been stalled due to a lack of political willpower, boding poorly for the country’s investment climate. Private consumption growth slid from 6.9% annually in Q2 to 5.4% in Q3. Despite the deceleration, household spending is holding up thanks to rising real wages. Meanwhile, government consumption swung back to growth in Q3, rising 4.3%.
The external sector dragged on activity in Q3, subtracting 3.4 percentage points from growth. The poor performance was chiefly due to soaring imports, which grew 13.2% annually in part due to higher oil prices. Exports grew 6.9% in Q3, rebounding from Q2’s 2.1% contraction.
Ukraine GDP Forecast
Looking forward, activity is seen gaining momentum next year as the effects of the trade blockade fade and investment growth strengthens. However, continued cooperation with the IMF is crucial to the country’s outlook, and recent backtracking by the government on efforts to fight corruption is threatening to put the country’s IMF program in jeopardy. FocusEconomics panelists see GDP rising 2.9% in 2018, which is unchanged from last month’s forecast. In 2019, growth is expected to pick up to 3.2%.