Ukraine industry plunges 6.1% in April

Ukraine’s industrial output plunged 6.1% yoy in April vs. a 2.7% yoy decline in March, according to the State Statistics Service report on May 23. In 4M17, industry contracted 2.0% yoy.

All core sectors were reported in the red. Mining and metals worsened in April, falling by -12.3% yoy (-8.9% yoy in March) and -10.7% yoy (-2.2% yoy), respectively. Utilities fell 8.5% yoy, which is somewhat of an improvement from -13.8% yoy in March. Chemicals production also eased its rate of decline: -3.7% yoy vs. -7.5% yoy in March. Machinery fell into the red with -0.8% yoy in April vs. +2.2% yoy in the prior month.

By geography, the strongest declines were in Luhansk (-46.0% yoy), Donetsk (-23.6% yoy), and Zakarpattya (-16.6% yoy) oblasts in April.

Alexander Paraschiy: April’s industrial result appeared to be really disappointing. Moreover, occupied Donbas was not the main source of this drop. In particular, we see that the rates of decline in Luhansk and Donetsk were comparable to the numbers in March. At the same time, we observe a substantial worsening in other regions across Ukraine: in March more than half of Ukraine’s administrative regions (13 regions) reported growth while already in April only 6 regions were performing in the black.

These numbers indicate that sliding resource prices on the global market now are driving the tendency. The IMF reports iron ore prices falling 19.2% m/m in April, which shaved off the price growth seen since November 2016. As a result, we see a deepened decline in metal production. This U-turn looks very disturbing. First, it started earlier than expected. Second, it looks stronger than initially anticipated. Against this backdrop, our previous forecast of 1.4% yoy industrial growth might be overoptimistic. To reach that growth rate, we will need a 4.0% yoy average industry increase in 2H17, which looks quite unlikely amid declining prices. We are not rushing to revise our forecast for the moment, as we need more observations to draw rigid conclusions. But if the tendency continues, zero growth looks like a new reality for industry in 2017.