Page 7 - UKRRptSept19

2.0 Politics
2.1 Ukraine’s economy takes off? Economic growth jumps
to 4.6% in 2H19
Ukraine-watchers were a abuzz on August 14 after the government announced economic growth surged in the second quarter, growing by 4.6% the nation's state statistics service Ukrstat reported on August 14, well ahead of even the most optimistic expectations.
“Time for the Ukrainian economy to take off as inflation has stabilized with minimal budget deficit & strict monetary policy. The hryvnia exchange rate has risen as desired to keep labour in Ukraine. Finally, we see reasonable growth, but property rights must be secured,” Anders Aslund, economist and a Senior Fellow at the Atlantic Council, said in a tweet.
The strong gain was driven by a bumper grain harvest and soaring grain exports that allowed Ukraine to overtake Russia as the biggest exporter of grain in the world for the first time in three years.
Rising consumption and slowly recovering income levels also contributed to growth, as the economy stabilises after collapsing in 2015-2016.
The 4.6% growth was well ahead of the 2.7% Reuters consensus for growth and was also up strongly on the 2.5%% growth in the first quarter. The country's real GDP in the second quarter of 2019 (taking into account the seasonal factor) increased by 1.6% quarter-on-quarter.
Although Ukraine’s economy is recovering from its recent crisis, it has been growing well below potential and should have grown faster given the depth of its previous fall.
The strong results will add to the growing optimism that has come with the election of Ukrainian president Volodymyr Zelenskiy and his Servant of the People (SOTP) party that both won landslide victories this year on the promise of change.
If Zelenskiy is lucky then the increased optimism will start a virtuous circle of investment-profits-pay rises-consumption turning that drove Russia’s boom years in the noughties and allow Ukraine to final capture some of its “catch-up” potential. Ukraine is the only major country in the Former Soviet Union (FSU) that has not been through this process and remains the poorest country in Europe as a result.
In July, the National Bank of Ukraine (NBU) revised its economic growth forecast for 2019 to 3% y/y compared with its April macroeconomic forecast of 2.5% y/y. The NBU also revised its 2020 economic growth forecast to 3.2% y/y from 2.9%. The revisions were attributed to "stronger domestic demand, more favorable terms of trade and expectations of a larger harvest of grain crops".
Domestic demand will remain the main driver of economic growth over the coming years. Private consumption growth will decelerate, albeit remaining high owing to an increase in real household income - wages, pensions and
7 UKRAINE Country Report September 2019 www.intellinews.com