Ukraine industry growth slows to 1.0% yoy in March

Ukraine industrial output grew 1.0% yoy in March, the
State Statistics Service reported on Apr. 22, largely owing to mining and
utilities as the manufacturing situation worsened. Growth slowed from 1.9% yoy
in the prior month, while seasonally adjusted output dropped 1.4% m/m. In 1Q18,
industrial output increased 2.4% yoy.

March manufacturing dropped 4.6% yoy (3.4% yoy growth
in February), weighed down by food production falling 8.0% yoy (4.6% yoy
decline in February). Metallurgy declined 3.7% (4.6% yoy growth in February)
while machinery output dropped 2.8% yoy (5.9% yoy growth in February). Growth
in chemicals slowed to 39.4% yoy (from 43.1% yoy in February).

Mining production grew 3.3% yoy in March, accelerating
from 2.3% yoy growth in February. Coal mining jumped 15.3% yoy due to a lower
comparative base from the prior year, while oil and gas production dropped 0.5%
yoy. Abnormally cold weather in March likely caused a surge in utilities output
of 22.8% yoy (vs. a 3.8% decline in February).

Regionally, declines were steepest in Mykolayiv
(-17.2% yoy), Kirovohrad (-14.2% yoy) and the Ukrainian-controlled part of
Luhansk (-14.0% yoy). Growth was strongest in Ivano-Frankivsk (23.7% yoy), the Ukrainian-controlled
part of Donetsk (16.9% yoy) and Sumy (14.5% yoy).

Evgeniya Akhtyrko: Industrial
statistics continue to frustrate expectations for a steady recovery in
manufacturing. Possibly, the abnormally cold weather in March, which disrupted
the usual production cycles at some enterprises, could partially explain the
failure in manufacturing. Again from last month, the continuing drop in food
production is creating additional inflationary pressure from the supply side
amid already high consumer inflation.

The weak first-quarter results imply that
industrial performance should improve to around 5% yoy growth in the following
three quarters in order to reach the 4.6% yoy expansion that we had expected
for this year. It is already clear that the weighty base effect in mining will
not add enough to push overall industry growth significantly higher. Only
positive developments in manufacturing (i.e. food, metallurgy, machinery) could
help to attain the expected growth.