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NBU Update on Change in Real GDP in Q2 2019

NBU Update on Change in Real GDP in Q2 2019

In Q2 2019, Ukraine’s GDP increased by 4.6% yoy, up from 2.5% yoy in Q1 2019, according to detailed GDP data for Q2 2019 published by the State Statistics Service of Ukraine.

The actual rates of economic growth outperformed the NBU’s estimates published in the July 2019 Inflation Report. For Q2, the NBU projected a 3% increase in real GDP. Consumer demand, which increased faster than expected, was the main driver that propelled the real GDP growth beyond the rate the NBU projected.

  • Households’ final consumption expenditures increased by 11.8% yoy compared to 10.7% yoy in the previous quarter. This acceleration was driven by higher household incomes and stronger consumer confidence. At the same time, the growth in the consumption expenditure of the general government sector continued to decline (to 6.4% yoy), primarily driven by the effect from the monetization of utility subsidies and by a tight fiscal policy.
  • Investment growth decelerated rapidly. The growth in gross fixed capital formation slowed to 7.9% yoy, down from 17.4% yoy in Q1, as large-scale projects in the energy sector and repairs at industrial companies moved into their final stages. The slower increase in public capital expenditures, in particular on road construction, was another contributor to the sharp slowdown.
  • Inventories continued to decrease, but not as significantly as in Q1. This can be attributed to the high harvest of early grains (boosted by higher crop yields and a fast harvesting campaign), and rising supplies of energy resources.  These factors significantly reduced the negative contribution of the drop in inventories to GDP growth.
  • While the bumper harvest bolstered exports, their growth decelerated (to 4.4%), including due to lower volumes of exports of metal products. Imports, on the other hand, increased more rapidly (by 9.1% yoy), primarily driven by a strong consumer demand and ramped-up shipments of energy resources. As a result, the negative contribution of net exports to real GDP growth increased to 2.8 pp.

In terms of sectors, the growth in agricultural output accelerated significantly, boosted by the high harvest. With repairs at several large companies drawing to an end, a strong external demand for iron ore, and a rise in the consumption of energy resources amid a heatwave in late Q2, Ukraine’s industrial performance improved.

The growth in finance and insurance soared as banks’ net earnings reached all-time highs. Trade and transportation increased more quickly. Value added kept growing fast in sectors where growth is mainly fueled by consumer demand. That includes temporary accommodation and catering, IT, telecommunications, etc. An increase in gas transit through Ukraine contributed to the improved performance of transportation. Meanwhile, the growth in construction shifted into lower gear as investment demand waned.

Detailed data on real GDP growth in Q2 and available high-frequency data for Q3 2019 show that domestic demand, especially consumer demand, has been rising at significant rates. At the same time, the NBU expects that though the harvest of early grains is higher than the quarter before, the contribution of agriculture will decline in Q3 due to a slightly lower harvest of oilseeds.

The NBU will announce a revised macroeconomic forecast at the regular press briefing on the monetary policy on 24 October 2019 and will publish it in the Inflation Report on 31 October 2019.

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