Ukraine GDP declines 4.7% yoy in 2Q14

Ukraine’s GDP dropped 4.7% yoy in 2Q14, according to an UkrStat provisional estimate released on July 30. Also the Cabinet of Ministers reported accelerated GDP decline in June to 5.9% yoy vs. 4.9% yoy in the prior month. For 1H14, GDP was estimated to have decreased 3.0%, the Economy Ministry reported previously.

Alexander Paraschiy: The released estimate is in line with our expectations. We believe 2Q14 and 3Q14 will report the deepest declines this year on the back of a devaluation effect and the war in the east. June’s acceleration in declining rates was totally due to a 17.6% yoy decline in agri-production, which was the result of a high statistical base (in June 2013, agri-production surged 36% yoy due to an early grain harvesting start).

Further trends are under a big question mark. On the one hand, we see positive tendencies in the war, offering a chance to finalize the conflict in the upcoming months. On the other hand, the third round of sanctions levied against Russia on July 29 is already prompting retaliation against Ukrainian exports (including to third-party countries). The official view is Ukraine’s GDP will drop 6% yoy in 2014, which would imply 3Q14 and 4Q14 GDP falling nearly 9% yoy on average.  Since our baseline scenario anticipates resolving the military conflict by the year end, we remain more optimistic, projecting 3.7% yoy GDP decline in 2014.