Ukraine: Growth falls to over one-year low in Q1
A second estimate of national accounts data revealed that the first-quarter slowdown was milder than previously estimated, with annual growth revised up to 2.5% from 2.2%. Nevertheless, this was still substantially down from the previous quarter’s 3.5% year-on-year expansion and marked the lowest reading since Q4 2017. In seasonally-adjusted quarter-on-quarter terms, growth slumped to 0.2% in Q1, from 1.1% in Q4.
The first quarter slowdown was largely driven by tumbling public spending which curbed overall domestic demand growth. Government consumption contracted 8.3% year-on-year in Q1, deteriorating markedly from the previous quarter’s 2.4% dip, as the dire state of public finances and the conditions linked to the IMF program nudged the authorities to go ahead with fiscal consolidation plans. Furthermore, inventories shrank notably in the first quarter, more than offsetting roaring fixed investment growth (Q1: +17.4% year-on-year; Q4: +10.2% yoy) to take a bite out of the overall expansion. On a more positive note, household spending growth picked up from 8.5% in Q4 to 10.7% in Q1 amid lower inflation and improving labor market conditions.
On the external front, metrics improved markedly in the first quarter. Export growth in annual terms soared to 6.8% (Q4: +0.4% yoy), bolstered by a strong increase in merchandise shipments. This signals that the sector remained resilient to rising headwinds amid the ongoing global trade spat and regional geopolitical uncertainty. Meanwhile, import growth also picked up in the first quarter (Q1: +6.5% yoy; Q4: +2.8% yoy), albeit less profoundly than that of exports. As a result, the external sector’s contribution to growth improved from minus 1.4 percentage points in Q4 to minus 1.0 percentage point in Q1, marking the best result since Q2 2016.