Ukraine: Ukraine's economy begins to heal in Q1
June 21, 2016
After over two years of contraction, Ukraine’s economy returned to growth in the first quarter of the year, albeit at a meagre pace. According to official data released by State Statistics Service Ukraine, GDP expanded a slight 0.1% in Q1 over the same period of last year. Although the result was a notable improvement from Q4’s 1.4% contraction and marked the best result since Q4 2013, the figure was partly driven by base effects given that the economy plummeted by 17.0% in Q1 2015. Nevertheless, fewer military clashes and more stable price pressures have led to a stabilization in economic data and the economy appears to have embarked on a modest recovery path.
The domestic economy continued to improve in Q1, although dynamics are still weak. Private consumption contracted 2.2% as austerity measures and weakened purchasing power continued to squeeze households (Q4: -13.0% year-on-year). Fixed investment, a bright spot in the data, accelerated to a 4.2% expansion (Q4: +1.4% yoy). The stabilizing economy is helping to shore up confidence levels in the country. Meanwhile, government consumption slowed notably to a slight 0.1% expansion (Q4: +8.1% yoy).
The external sector’s contribution to growth deteriorated in Q1 as the fall in imports eased notably. Imports plummeted 7.2% in Q1, which was a smaller drop than Q4’s 17.3% plunge. Nevertheless, imports remained in contractionary territory as the depressed domestic economy and capital controls hurt demand. Exports contracted 3.8%, which was a more moderate drop than the 5.8% fall recorded in Q4. The lower value of the UAH combined with efforts to tap European markets have supported exports, while shipments to Russia have plummeted since the onset of the crisis. As a result, the external sector’s contribution to growth fell from 6.4 percentage points in Q4 to 2.2 percentage points in Q1.