Ukraine GDP falls 3% in 1H14

Ukraine’s GDP fell 3% during the first six months of the year, Anatoliy Maksiuta, the deputy minister of economy, reported on July 25. He also revealed the Ministry’s outlook for the full year, with GDP shrinking 6% yoy and inflation speeding up to 19% YTD by the year end.

Alexander Paraschiy: The Ministry’s 1H estimate means that GDP declined only by 4.6% yoy in 2Q14 (after -1.1% yoy in 1Q14). Against this backdrop, it is quite strange to see the ministry anticipating a net -6% yoy drop by the year end. To reach such results, GDP should slump 9% in 2H14, which is a very pessimistic scenario, even in light of the war in the east. So far, we do not see any evidence of an inevitable aggravation of the economy by the year end. Particularly in industry, for several months we’ve observed a slowdown in declining rates and only -4.7% yoy in 1H14 total, which is better than expected. Retail trade (i.e. private consumption) is worsening (-9.3% yoy in June). However, this trend falls in line with contracting imports (non-energy imports fell 20.9% yoy in May), which means that the cut in consumption is related largely to imported products rather than domestic production.

At first glance, a reported 17.6% yoy decline in agri-production in June might look disturbing but concerns evaporate when reviewing the 2013 numbers: due to the early start of harvest, the agri-sector surged 36% in June 2013 in what created a disadvantageous statistical effect for this year. This year’s grain harvest should come very close to 2013 results (63 million tons), which means that the agri-sector will prevent GDP from falling too fast in 2H14. In light of this reasoning, we are keeping our GDP forecast unchanged at -3.7% yoy for 2014, disregarding the pessimistic view of the Economy Ministry.