GDP falls 4.7% y/y in 2Q 2014

UKRAINE - In Brief 31 Jul 2014 by Dmytro Boyarchuk

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In 2Q 2014 Ukraine’s GDP declined 4.7% y/y State Statistics Office reported on July 30. Also the authorities estimated GDP sliding 5.9% y/y in June vs. 4.9% y/y in May. For the first half of the year GDP was estimated to fall 3.0% y/y, according to Minecon. By the end of the year the Cabinet anticipates 6.0% y/y GDP decline. Virtually, the trend is in line with our estimates. Against the backdrop of military conflict and the hryvnia devaluation consequences we expected 2Q and 3Q to witness the deepest economy decline. Still in our baseline scenario we assume that military campaign will be concluded successfully over the upcoming months and economic life will normalize by the end of the year. In light of this a 8.5% y/y decline for 2H 2014, the authorities project, look too much pessimistic for the moment. The deepening decline in June (to 5.9% y/y) could not be seen as representative since in June we observed a statistical base effect. In particular, a year ago harvesting started earlier what resulted with astonishing 36% y/y agro-production increase through the month. Against this backdrop there was no surprise to see 17.6% y/y decline in agriculture in June this year. At the same time, by the yearend general grain harvest is expected flat y/y (near 63 million tons), according to agro-experts' forecasts. Thus, disregard official pessimistic view, we still are keeping our GDP forecast unchanged at 3.9% y/y for 2014.