bne IntelliNews – Ukraine’s economy slipped back into recession in the second quarter on an aq/q basis
Ukraine’s economy slipped back into recession in the second quarter of this year, as the fallout from the pandemic and soaring inflation that prompted the National Bank of Ukraine (NBU) to raise interest rates dramatically are beginning to weigh on growth.
GDP fell 0.8% q/q seasonally adjusted in the second quarter after falling 1.2% q/q in the previous three months, according to preliminary data released by Ukrstat on August 16.
However, on an annualized basis, GDP growth was positive, rising 5.4%, compared to -2.2% year-on-year growth in the first quarter, although growth in the second quarter was lower than the 7.3% year-over-year increase that analysts expected.
Ukraine’s economy has recovered from last year’s crisis, with industrial production rebounding strongly in April, up 13% year-on-year. However, growth is now faltering, with industrial production also falling back to just 1.1% year-on-year in June.
The fly in the ointment has been inflation which has come back strong this year and surpassed 10% for the first time in years in July to hit 10.2%, after the NBU effectively crushed inflation at the summer of 2020 when it briefly fell below. 2%.
In response, the NBU was forced to implement a series of large, growth-damaging rate hikes — March (50 bp), April (100 bp), apartment in june and July (100 bp) — in an attempt to control rising prices.
In the same quarter, growth in core sector output, which is a rough proxy for GDP growth, was driven primarily by improvements in retail trade, industrial production and construction, all thanks to a weak base.
Core sector output growth peaked at 18.3% year-on-year in April, largely due to the weak base effect, before slowing to 4.1% in May and 1.7% in June. The slowdown was evident in most of the most important sectors, including industrial production, retail trade and agriculture.
“In 1H21, GDP growth reached 1.7% y/y. We expect the economy to continue to grow modestly this year and the annual figure to be around 1.5%,” Sova Capital said in a note.