Page 5 - UKRRptJul19

1.0 Executive summary
Ukraine GDP rose 2.5% in 1Q19, updated stats show. The economy continues to underperform. Following the 15% contraction in 2016 the economy should be bouncing back more vigorously than it is but the combination of war with Russia and political uncertainty caused by the up coming Rada elections means that investors are waiting for the dust to settle. Having said that international retailers, like IKEA and Metro, are already moving in and construction and the real estate sector are already picking up – early signs of an economic recovery. The fate of Ukraine’s further growth depends heavily on the outcome of the Rada elections and Ukrainian president Volodymyr Zelenskiy’s ability to push ahead with the reform agenda – especially in tackling the all important corruption issue.
Ukraine’s real GDP growth slowed to 2.5% y/y in 1Q19, or 0.3% q/q on a seasonally adjusted basis, to UAH808bn ($29.6bn), the State Statistics Service reported on June 19, revising upward its preliminary estimate of 2.2% y/y and 0.2% q/q growth. Ukraine’s economy grew 3.5% y/y in the fourth quarter of 2018.
Likewise, Ukraine's industrial output increased 1.6% y/y in May, slowing from 5.2% y/y in April, due to weaker growth in manufacturing, the State Statistics Service reported on June 24. Seasonally adjusted output declined 0.9% m/m. In 5M19, industrial output climbed 0.9% y/y.
The National Bank of Ukraine (NBU) is still struggling to contain inflation, which accelerated to 9.6% y/y from 8.8% y/y in April. As a result the central bank kept key policy rate at 17.5% at its June meeting, citing increasing risks. The NBU is being tough, targeting inflation over the need to cut rates to boost growth, but this has had a positive effect on bond investors which have been flooding into the local debt market since it was hooked up to Clearstream a month ago and non-residents already own some 6% of outstanding bonds from next to nothing a year ago.
In his first major economic reform, the Rada sent a bill to reform the power market and improve the trading of electricity went was read in the Rada, but implementation was delayed, and could be delayed by as much as a year. Ukraine’s donors, while applauding the reform, warned the government not to rush it as getting the reform right will have a major impact on the economy. The plan is to move from a single agent that buys power to a more sophisticated system that allows trading to make the market more responsive to changes in demand and supply. Zelenskiy also said in June that creating a market for farmland and improving the investment climate are at the top of his policy agenda – policies that will be welcomed by Ukraine’s donors. But the real launch of Zelenskiy’s reforms can only start in the autumn after the Rada
5 UKRAINE Country Report July 2019 www.intellinews.com