Ukraine industry recovers 1.2% yoy in May

Ukraine’s industrial output recovered 1.2% yoy in May after declining for the last three months, the State Statistics Service reported on June 22.  For 5M17, industry remained in the red by 1.3% yoy.

The main source of growth in May was machinery, which surged 14.7% yoy after slipping 0.8% yoy in April. Other core economic sectors kept falling but at slower rates: metals plunged 8.0% yoy (vs. -10.7% yoy in April), mining fell 4.6% yoy (vs. -12.3% yoy), and chemicals dropped 1.1% yoy (vs. -3.7% yoy). Only utilities worsened at a 9.6% yoy drop in May (vs. -8.5% yoy in April).

Regionally, the strongest declines were, as usual, in war-torn Luhansk (-40.0% yoy) and Donetsk (-13.5% yoy).

Alexander Paraschiy: Though growth recovered, the increase was driven only by machinery, which has a pattern of volatility. Metals and mining kept falling, owing to declining global metal prices (the IMF metals price index dropped 3.9% m/m in May) and the consequences of the trade blockade of occupied Donbas. This structure of growth means that the May results are quite fragile and we can easily see industry falling again in June.

Still, the improved May numbers mean that our initial estimate of 1.4% yoy industrial growth for 2017 is realistic. It will require 3-4% average monthly industrial output increases in 2H17, which looks optimistic. However, with the low comparative base and gradual rebuilding of alternative production and supply chains (prompted by the trade blockade), there is a chance for industry strengthening till the year end. Thus far, we are sticking to our initial projection.