Ukraine: Second GDP release confirms strong recovery in Q1
June 19, 2018
Comprehensive data released by the State Statistics Service of Ukraine on 19 June confirmed that the Ukrainian economy picked up pace in the first quarter, following four consecutive quarters of decelerating growth in 2017. The economic recovery in Ukraine lost significant momentum in 2017 due to an economic blockade with the Donbass region and the slow pace of structural reforms. GDP grew 3.1% over the same period of last year in Q1, unchanged from the preliminary estimate released in mid-May, and up markedly from the previous quarter’s 2.2% print. The first-quarter result marked the second highest rate of growth in six years and the strongest expansion since Q4 2016.
The domestic side of the economy was firmly in the driver’s seat in the first quarter. Despite losing some steam, private consumption expanded 5.6% year-on-year (Q4 2017: +11.1% year-on-year), easily offsetting a 1.4% year-on-year (Q4 2017: +3.2% yoy) drop in government consumption. As a result, total consumption expanded 4.0% annually in Q1 (Q4 2017: 8.8% yoy), with the slowdown partly due to a fading base-year effect that inflated previous quarters’ figures. Furthermore, fixed investment growth continued on a high note in Q1, coming in at 17.0% in the quarter, a notch above the fourth quarter’s 16.7% expansion last year.
On the external front, trade dragged on economic activity in Q1 as imports continued outperforming exports for the ninth consecutive period. Imports fell 5.4% annually in Q1, reversing from 20.5% yoy growth in Q4. Export growth also slipped into negative territory in Q1 (-9.9% yoy), contrasting the previous quarter’s 8.8% yoy expansion. As a result, the external sector detracted 0.8 percentage points from GDP growth in the first quarter. Nevertheless, the result marked a notable improvement from the negative 7.4 percentage-points detraction from growth in Q4. The improvement likely came about as the economy started recovering after a shock to trade linkages felt throughout 2017, due to the trade blockade with the rebel-held eastern regions, which led to higher imports as firms were forced to turn overseas.
On a quarter-on-quarter basis, the economy expanded a seasonally-adjusted 0.9% in the first quarter, more than doubling from the previous quarter’s 0.4% growth, and marking the strongest expansion since the first quarter last year.
Ukraine GDP Forecast
Looking ahead, the economic recovery should continue gaining strength this year as the effects of the trade blockade fade. Meanwhile, and despite fulfilling one of the IMF's key requirements—the establishment of an anticorruption court—the next tranche of financial help from the Fund is not guaranteed, as further budget reforms and changes in policies related to gas prices are required. Therefore, a strong downside risk to the country’s outlook persists, due to a risk of the IMF program being 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 3.0%.
Author: Almanas Stanapedis, Economist