Ukraine Economy Ministry projects 1% GDP increase in 1H16

The Ukrainian Ministry of Economic Development and Trade anticipates GDP growth to speed up to 1% in 1H16, after a near 10% decline in 2015, Interfax news agency reported on Feb. 22. The revival will be driven by a low statistical base as well resumed industrial growth in the east of the country, strengthened internal demand caused by increased wages, and reduced production costs after a payroll tax cut, as mentioned in the ministry’s statement. At the same time, the ministry points out the risks of a further decline in global commodity prices and extra trade restrictions from Russia.

Previously UkrStat reported that Ukraine’s GDP decline slowed down to -1.2% yoy in 4Q15, compared to -7.2% yoy in 3Q15, -14.6% yoy in 2Q15 and -17.2% yoy in 1Q15.

Importantly, the state budget for 2016 was drafted based on a 2.0% GDP growth assumption.

Alexander Paraschiy: We are less optimistic about the economy’s development than the ministry. A low statistical base will always help improve statistics, but we are skeptical about the revival of internal demand as well as investment prospects amid sluggish resource prices and a poor investment environment. Electricity consumption in January (which fell 11.4% yoy for the industry) tells us that recovery is not on the horizon. What’s more, the Ministry of Economy itself projects an agro-production decline of  1% in 1H16. Against this backdrop, we are keeping our projection of 0.6% yoy GDP growth for 2016 and a year-on-year decline in 1H16.