Ukraine industry plunges 10.7% in 2014

Ukraine’s industrial output plunged 10.7% yoy in 2014 compared to a 4.3% yoy drop in the prior year, Ukrstat reported on Jan. 19. All core industries slowed production, including machinery (-21.3% yoy), metals (-14.9% yoy), chemicals (-14.7% yoy), mining (-13.7% yoy) and utilities (-6.6% yoy). On a regional basis, those hit hardest were war-torn Luhansk (-42.0% yoy) and Donetsk (-31.5% yoy).

Alexander Paraschiy: The industrial decline was in line with our estimate of a 10.6% drop, owing to the war with Russia that has devastated Ukraine’s industrial heartland of Donbas (the collective term for the Donetsk and Luhansk regions). Industry will keep falling in 2015, primarily due to the statistical effect of a high comparative base of performing without eastern Donbas output. We project a 4.8% yoy industry decline by the end of the year.

At the same time, we anticipate stabilization of the economic situation and even gradual industrial recovery in the regions that are not plagued by war. It’s the unpredictable nature of the war that poses the main risk to stabilization, which is also conditional on ability of the authorities to reach an agreement with the IMF and, subsequently, to secure stabilization of the national currency.