Ukraine’s GDP Growth Accelerates to 3.6% YoY in 2Q18

August 20, 2018

The Ukrainian economy’s growth accelerated to 3.6% YoY in 2Q18 from 3.1% YoY registered in 1Q18, according to the preliminary estimate from the State Statistics Committee released last week. The data also showed that the country’s seasonally-adjusted GDP rose by 0.9% on a quarterly basis in the period.

The new GDP data exceeded most analyst expectations, improving the chances that the National Bank’s optimistic forecast of full-year growth of 3.4% could be borne out. However, we are leaving our projection for GDP growth this year at 3.0%. According to UkrStat, the unemployment rate in Ukraine stands at 9.7%, a marginal drop from the rate of 10.6% seen back in 2016. We believe that Ukraine’s economic output received a boost not from higher employment, but from higher remittances from Ukrainians working in the European Union (many illegally) after the EU visa-free regime was established in June 2017. The NBU is estimating that remittances from Ukrainians working abroad could jump by 25% YoY in 2018 to an impressive figure of USD 11.6bn if all cash crossing the border is included. These remittances help to spur consumer spending, especially in the non-industrial provinces of Western Ukraine. Retail sales in Ukraine grew by 6.2% YoY in 1H18.
Currently we do not see the necessary fundamentals for an acceleration of economic growth in Ukraine to above 4%. Nevertheless, GDP growth of 3.5% is certainly possible in 2019 in case the country does not face a problem with external debt servicing due to an inability to refinance the scheduled repayments to the IMF. Ukraine will have to pay USD 1.35bn to the IMF next year, including USD 1.15bn in redemptions of principal debt.   

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