Ukraine: GDP declines at a more pronounced pace in the first quarter
GDP shrank at a quicker rate of 2.2% year-on-year in the first quarter, following the 0.5% contraction recorded in the fourth quarter of last year, according to a second national accounts release. The result was lower than the preliminary estimate of a 2.0% drop. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, GDP declined 1.2% in Q1, contrasting the previous quarter’s 0.8% increase and marking the worst result since Q2 2020.
The first quarter’s downturn came on the back of slowing consumption growth and deteriorating external sector metrics. Household spending increased 4.4% in the quarter, which was below the fourth quarter’s 5.3% expansion, amid lingering Covid-19 restrictions. Similarly, government spending growth softened to 3.2% in Q1 (Q4 2020: +4.1% yoy). Meanwhile, fixed investment fell at a more moderate pace of 7.8% in Q1, improving from the 26.5% contraction recorded in the prior quarter.
On the external front, exports of goods and services contracted 17.4% in Q1, marking the worst reading since Q2 2015 (Q4 2020: -9.2% yoy). Conversely, imports of goods and services bounced back, growing 3.7% in Q1 (Q4 2020: -4.0% yoy) and marking the best reading since Q3 2019. As a result, the external sector subtracted significantly more from overall GDP in the opening quarter of the year than in Q4 2020.
The economy is projected to bounce back this year amid a broad-based recovery in activity as restrictions are lifted and both private spending and capital investment pick up. Moreover, vaccination campaigns abroad will likely bolster the external sector. However, recent geopolitical tensions with the country’s regional neighbors—most notably Russia and Belarus—dampen the outlook.