In Q1 2016, real GDP increased year-on-year for the first time in the last two years. State Statistics Office data, which were unchanged compared to the previous assessments, real GDP was up by 0.1% compared to the relevant quarter a year ago. However, real GDP retreated by 0.7% compared to Q 4 2015 (when seasonal factors are disregarded).
GDP increased year-on-year at a somewhat slower pace than that predicted by the NBU in its Inflation Report for April 2016.
GDP growth in Q1 2016 was largely deterred by temporary factors. The restrictions on the transit of Ukrainian goods that were in place in January-February resulted in worsening expectations of businesses. The unfavorable weather conditions in January halted construction work and restricted transport operations. The first half of the quarter continued to see downwards trends on global commodity markets. In spite of a marked improvement in the economic environment and the expectations of businesses that took place in the latter half, the negative trends that existed earlier influenced the results for the entire quarter.
In its forecast, the NBU took into account the possible influence of the negative factors that existed in Q1 2016. Any deviations from the forecast are mostly due to developments in the service sector for which no frequent data updates are available. In particular, the gross value added in the finance and insurance business dropped significantly (by 32%). Apart from that, activity in the educational and health care sectors decreased again. Meanwhile, the gross value added in the sectors the monthly output data of which serve as the basis for NBU projections, increased as predicted. In particular, industrial and trade output returned to growth, the output of construction and transportation rose further, and the decline in agricultural output slowed.
In terms of use categories, the GDP growth year-on-year was mainly driven by investment and net exports. The increase in gross capital formation sped up to 4.2% y-o-y. The fall in exports decreased insignificantly, to 3.8% y-o-y compared to 5.8% y-o-y in Q4 2015. Meanwhile, the drop in imports slowed markedly, to 7.2% y-o-y compared to 17.3% y-o-y in Q4 2015. This was due to additional imports duties being lifted from 1 January 2016, and the deferred demand that accumulated before the lifting of these duties taking place. This decreased the positive contribution of net exports to real GDP change to 2.5 p.p. in Q1 2016. Public sector consumption, which rose significantly in Q4 2015, at 0.1%, was practically unchanged year-on-year in Q1 2016. Household consumption decreased further in Q1 2016, by 2.2% y-o-y, although at a slower pace compared to Q4 2015 when it dropped by 13.0% y-o-y.
The NBU believes that positive changes in external conditions, such as the lifting of the ban on the transit of Ukrainian goods and a rise in global commodity prices, that occurred in late Q1 2016 put the economy back on the path of growth were it was in the latter half of 2015. This is evidenced by a considerable improvement in the expectations of businesses and the actual data on the output of the economy’s key branches for April – May 2016. Consequently, NBU projections of a 1.1% real GDP increase remain up to date.