Ukraine 2013 GDP unchanged yoy despite strong harvest

Ukraine’s 2013 nominal GDP estimate improved to UAH 1,455 bln yoy (from the first estimate of UAH 1,445 bln presented on Jan. 30), which implied a 3.3% yoy increase, the State Statistics Service reported on March 11. Growth of 2013 real GDP was confirmed to have been unchanged last year. Agri-production, which jumped 13.8% yoy (in real terms) on the back of a strong grain harvest, and some growth of market services (trade +2.0% yoy and transportation +0.6% yoy), were the key factors that prevented GDP from falling in 2013. At the same time, other key sectors of economy were reported to be deep in the red with construction plunging 13.6% yoy, manufacturing falling 9.3%, and utilities shrinking 2.7%.

Alexander Paraschiy: Economic growth lost its steam last year. Private consumption was still positive but not enough to compensate steadily sliding external demand. To make matters worse, both investment demand and government consumption were in the red due to poor economic policy and fiscal crisis.

We anticipate GDP falling nearly 3% this year, reflecting the armed conflicts at the start of the year. However, we believe the situation will start improving by the year end. Hryvnia devaluation will cut private consumption even deeper and budget cuts will only aggravate the problem. However, cheaper exports as well as more competitive domestic commodities will have a chance to gain momentum owing to the national currency’s decline.

If the Cabinet indeed fulfills its promise to launch badly needed reforms (given that considerable macro support arrives from the West), Ukraine will have a chance to experience strong economic growth already in 2015.