Ukraine: Second estimate confirms solid growth in Q2
September 20, 2018
Recently-released detailed national accounts data revealed that the recovery strengthened in the second quarter of 2018. GDP rose 3.8% in annual terms in Q2 (previously reported: +3.6% year-on-year), up from Q1’s 3.1% increase. The print was largely driven by robust domestic demand and marked the strongest expansion in a year and a half. The result also exceeded the Central Bank’s expectations of a slightly more moderate increase, largely due to the early start to the harvesting season this year.
Looking at the breakdown, domestic demand was in the driver’s seat in the second quarter. Government spending growth soared by double digits (Q2: +11.0% yoy), swinging from a contraction at the outset of the year (Q1: -1.4% yoy) and marking the strongest increase since Q4 2015. The second-quarter increase in public spending was primarily driven by the allotment of higher household utility subsidies. Household consumption growth, meanwhile, remained solid and came in at 4.2% in Q2 (Q1: +5.6% yoy), against the backdrop of improving consumer sentiment, higher real wages, growing remittances and an increase in pensions. Lastly, amid a favorable business climate, fixed investment rose a solid 14.2% yoy in Q2, led by a marked increase in budget capital expenditure on road and transport infrastructure. Nevertheless, the rate of investment growth decelerated somewhat from the previous quarter (Q1: +17.0% yoy).
The external sector’s contribution to growth deteriorated in the second quarter, with exports of goods and services up 0.1% yoy, compared to a significant 9.9% contraction in the first quarter. The improvement came on the back of higher exports of foods, ores, and ferrous metals, and despite the drop in grain exports due to low yields of early crops. However, imports returned to growth in Q2 (Q2: +3.0% yoy), following the first contraction in two years observed in the previous quarter (Q1: -5.4% yoy).
On a quarter-on-quarter basis, the economy expanded a seasonally-adjusted 1.0 % in the second quarter (previously reported: +0.9 qoq sa), up slightly from the first quarter’s 0.9% increase.
Looking ahead, the next tranche of financing under the USD 17.5 billion deal with the IMF remains up in the air after the Fund’s mission in Ukraine that ran from 6 to 19 September concluded without reaching an agreement. Discussions are reportedly ongoing, with a deal for unlocking financial aid deemed by the Central Bank as critical to the country’s macro-financial stability next year, when the election cycle kicks into full swing. Meanwhile, the country signed an EUR 1.0 billion loan agreement for the fourth EU macro-financial assistance program on 14 September, with money destined to replenish Ukraine’s international reserves.
Author: Almanas Stanapedis, Economist