Ukraine industry slows to 1.9% yoy growth in February

Ukraine industrial output rose 1.9% yoy growth in
February, slowing from 3.6% yoy in the prior month, the State Statistics
Service reported on March 22. In 2M18, industrial output increased 2.8% yoy.

February manufacturing decelerated to 3.4% yoy growth
(from 9.7% yoy in January), contributing the most to the overall weaker result.
Meanwhile, mining production grew 2.3% yoy (from a 0.2% decrease in January),
showing growth for the first time since January 2017. Utility output continued
its decline, dropping 3.8% yoy (vs. an 8.1% yoy plunge in January).

Weakening manufacturing was mostly due to falling food
production (-4.6% yoy vs. 2.9% yoy growth in January), as well as decelerating
growth in metallurgy (4.6% yoy vs. 7.9%) and machinery (5.9% yoy vs. 22.1%
yoy). Growth in chemicals remained strong, advancing 43.1% yoy (vs. 55.9% yoy).

Regionally, declines were steepest in the
Ukrainian-controlled part of Luhansk (-32.0% yoy), Chernihiv (-11.8% yoy) 
and Ternopil (-8.3% yoy). Growth was strongest in Ivano-Frankivsk (20.9% yoy),
Sumy (18.3% yoy)  and Lviv (10.5% yoy).

Evgeniya Akhtyrko: February’s
industrial statistics are disappointing, particularly manufacturing. The drop
in food production is especially worrisome as it could create additional inflationary
pressure from the supply side. Recall, consumer inflation remains high, reaching 14.0% yoy in February.

Meanwhile, the growth in mining was quite expected as
it was mostly due to the lower base effect of February 2017, when statistics
for the first time reflected the results of the trade blockade with occupied
Donbas.

These statistics demonstrate that monthly results
could be uneven and the current growth pace might not be sustainable to reach
the 4.6% yoy expansion that we had expected for this year. We view this target
as entirely realistic so industry should be prepared for a stronger, more
consistent effort.