Page 5 - UKRRptJul21

1.0 Executive summary
Ukraine’s economy continues to recover but that recovery started to slow somewhat in May, due to soaring inflation and base effects.
Ukraine’s real GDP plunged 2.2% y/y in 1Q21, the State Statistics Service reported on June 22, worsening its preliminary estimate of -2.0% y/y. The economy declined 1.2% q/q seasonally adjusted.
The plunge in investment is an indicator of a poor financial state and the overall confidence of Ukraine’s businesses.
On the face of it the trade situation looks good with high commodity prices sending export revenues shooting up so the country was running a comfortable $700mn-plus current account surplus. But while exports in the first quarter looked quite impressive in money terms, a high respective deflator (33.9%) turned the real result to the red, according to Concorde Capital.
Overall the picture is mixed. The real change was weighed down by a gross fixed investment plunge of 7.8% y/y in 1Q20. The contribution of external trade was also negative with real exports plunging 17.4% y/y and imports advancing 3.7% y/y. At the same time, private consumption picked up 4.4% y/y. In addition, public consumption advanced 3.2% y/y.
The bounce back from the coronacrisis was more visible in indicators.
Ukraine's key industries output index jumped 18.3% y/y in April following a decline of 0.1% in March partly on the low base effect. Construction saw the biggest improvement, with volumes expanding 12.9% in April following an 11.5% decline in March and in that sector there was genuine activity with residential and commercial real estate projects visibly building momentum. Likewise retail sales surged 34.3% y/y following growth of 13.1% in March as pent up demand is released. And industrial production growth climbed to 13% in April from 2.1% in March, mainly thanks to manufacturing (18% growth in April versus 2.5% growth in March).
Agriculture was the laggard, with output slipping 4.6% following a decline of 2.3% in March. Ukraine’s agricultural sector was set back by drought and farmers took in a smaller harvest than expected. Global warming is expected to slowly depress Ukraine’s grain output in the coming decades.
But recovery will go ahead and the economy is expected to grow some 4% -- forecasts were being revised in June to take account of the slowdown – versus a 4% contraction last year.
On the politics front the news is also mixed. While it seems clear that Ukraine’s importance has been downgraded by the White House following the one-on-one summit between US president Joe Biden and Russian President Vladimir Putin in Geneva on June 16, the US will still support Ukraine in its fight with Russia. Ukrainian president Volodymyr Zelenskiy has been given a White House meeting in July to underpin that relationship.
However, the new dynamic is that the US is now insisting that Bankova make more and concrete progress in its reform campaign. When asked if Ukraine
5 UKRAINE Country Report July 2021 www.intellinews.com