According to the updated data of the State Statistics Service of Ukraine, in Q2 2017, Ukraine’s economy grew 2.3% yoy having slightly decelerated from 2.5% yoy in Q1. Real GDP increased 0.6% qoq seasonally adjusted.
Real GDP growth rates outperformed the NBU estimates published in July 2017 Inflation Report.
An improvement in corporate financial standing and business expectations, which gave a boost to investment activity, was the main economic growth driver over this period. In Q2, capital investment accelerated to 23.7% yoy despite a higher comparison base.
An increase in real wages and stronger consumer confidence have contributed to a substantial pick-up in household consumption, which accelerated to 6.9% yoy. However, the public sector’s consumer spending resumed declining (down by 7.8% yoy) due to the prudent fiscal policy.
Most key industries picked up on a growth in domestic demand:
gross value added (GVA) increased for construction (to 28.8% yoy) and trade (to 3.8 yoy)
GVA of the services sector continued to grow, except the budget-financed services (education, healthcare, art, sports, entertainment and recreation)
in the production sector, despite the difficulties in metals and mining industry and energy sector, output of other industries increased markedly, especially the machinery industry. Respectively, GVA growth in manufacturing accelerated to 4.2% yoy.
At the same time, foreign trade showed a deterioration. Suspension of trade with the non-government controlled area has made exports drop deeper (to 2.1% yoy). Natural gas supplies exceeding the year-on-year level as well as higher investment and consumer demand contributed to an acceleration in import growth (to 4.6% yoy).
At the same time, although the economy continued to grow in Q2, its growth rate decreased. Caused by adaptation of metals-and-mining and energy companies to the new business conditions which they faced after the breach of trade and transport links in the east of the country, the slowdown in GDP growth was foreseen by the NBU. In addition, performance of agriculture declined further due to both the continued drop in animal breeding, and harvesting campaign which started later than last year.
Economic growth will continue to decelerate slightly in H2.
Weight of crop farming traditionally grows during this period. This year, yields are expected to be high but somewhat below the last year’s bumper crops.
In some industries, growth will slow against a higher comparison base. First of all, this concerns construction and other industries that rely on investment.
At the same time, investment demand will remain strong as indicated by business expectations of Q3 2017 which have been the highest since 2013.
The external price environment is also improving, which reflects in metal companies’ growing outputs.
In general, the current real sector dynamics and H1 2017 results increase the chances for economic growth of 2017 to exceed the NBU’s forecast (1.6% yoy) published in July 2017 Inflation Report.