Industrial Output Flat for FY17 after Donetsk, Lugansk Removed from Data

January 29, 2018
 

News
The State Statistics Committee (UkrStat) reported on Jan 23 that Ukraine’s industrial output (as measured by UkrStat’s index) inched down by 0.1% YoY in full-year 2017. Previous years’ performances were a rise 2.4% in 2016 and a drop of 13.0% YoY in 2015. The manufacturing sector had an increase of 4.0% YoY in 2017 while the utility sector saw an output drop by 6.5% YoY, and the extraction sector’s output contracted by 5.8% YoY in the period.  
In a separate report, UkrStat said that retail sales increased by 8.8% YoY in full-year 2017 after a 4.0% YoY rise in FY16 and a 19.8% YoY decline in FY15. Ukraine’s overall agricultural output declined by 2.7% YoY in 2017 after an increase of 6.1% YoY in 2016 and a 4.8% YoY decline in 2015. In the construction sector, output grew by 20.9% YoY in 2017 after a rise by 13.1% YoY in 2016 and a contraction by 12.3% YoY in 2015.


Commentary
The official FY17 figure for industrial production came in below all the forecasts (including ours) made at the start of 2017, which were in the range of 2% growth. What forecasters did not know was that Ukraine’s industrial output data was going to take a substantial hit from the removal of production volumes from the Donbass occupied territories (which occurred last March). This development changed the fundamental comparison base of 2017 from 2016 and led to a statistical misrepresentation of the overall situation in the Ukrainian industrial sector, as we suspect that the de-facto loss of production on the occupied territories to Ukraine’s economy had actually occurred as much as 2 years earlier than the official acknowledgement.  
Looking at industrial production in a sector breakdown, there was a 17.4% YoY increase in chemical product output in FY17. Double digit growth of 15.2% YoY was also observed in transportation machinery production.
For 2018, we forecast an increase in Ukrainian industrial output by 2.2% YoY on the back of recovery of the extraction sector and a more appropriate comparison base for the utility sector (the most important component of which is electricity output for industrial use).


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