Ukraine industrial output declines 1.7% in January

Ukraine’s industrial output fell 1.7% yoy in January, according to the report of State Statistics Service on Feb 24. The decline thus slowed down slightly vs. -2.1% in December 2015. Remarkably, industry decline adjusted for working days’ difference was a bit slower at -1.4% yoy. The utilities increase of 2.2% yoy (-10.9% yoy in December) as well as the somewhat better performance of chemical production (-7.5% yoy vs. -8.5% yoy) were the main reasons for the slight improvement. At the same time, all other sectors substantially worsened at the start of the year: machinery fell 3.8% yoy (+5.8% yoy at the prior month), metals fell 2.8% yoy (-1.9% yoy) and mining dropped by 2.6% yoy (+2.7% yoy).

Remarkably, this was the 42th consecutive month of the decline in Ukraine’s industry, which started far before the crisis of 2014, in August 2012. 

Alexander Paraschiy: Although headline industry performance is in line with our projections (we expect an 1.2% industrial output decline in 1Q16), the reasons for this result look disturbing. The utilities increase, which secured better industry performance, was primarily due to prolonged cold weather throughout the month which triggered a 9.5% yoy jump in heating production. Apparently, this growth was seasonal and it will not continue in the upcoming months. At the same time, we see sectors such as machinery, metals and mining are sinking deeper than we expected, due to lower metal prices and the continued conflict with Russia. Against this backdrop, we see significant risks for industry to decline more than we initially anticipated. So far, we maintain our initial forecast for industrial output at +0.7% yoy for 2016.