Ukraine: GDP growth improves in Q1 2024
GDP reading: According to a preliminary estimate, GDP grew 6.5% annually in Q1 2024 (Q4 2023: +4.7% yoy). On a seasonally adjusted quarterly basis, the economy expanded 1.2% in Q1, up from the prior quarter’s 0.7% rise.
Drivers: Absent a full data breakdown, high-frequency data suggests that the improvement likely stemmed from stronger domestic activity. Credit to residents returned to growth in the quarter for the first time since Q3 2022. In addition, average inflation cooled to a 13-quarter low, and the National Bank of Ukraine continued reducing interest rates.
On the external front, nominal exports of goods rebounded in Q1 for the first time in two years, pointing to an improvement in trade flows despite the war. Meanwhile, nominal goods imports swung into contraction.
GDP outlook: Our panel expects GDP growth to average notably below Q1’s level in the remainder of the year as inflation accelerates and Russia maintains its attacks on critical infrastructure. Over 2024 as a whole, the economy is set to expand at a weaker clip compared to last year, chiefly on slowing momentum in household spending, public consumption and fixed investment. On the flipside, rebounding exports will provide a tailwind to growth. The outlook for Ukraine’s economy continues to hinge on the course of the war, the counteroffensive in the east and inflows of international aid.
Panelist insight: Analysts at Ukraine Economic Outlook commented on recent changes to their GDP forecasts:
“We downgrade our estimate of real GDP growth in 2024 to 3-4% due to Russia’s active attacks on the country’s energy system and the introduction of stabilization blackouts. At the same time, we expect the hostilities to continue in 2024 and 2025 with varying degrees of activity. Of course, all of this is subject to the maintenance of stable external financing from our Western partners at the level of $42 Bln in 2024 and in the following years. It should be noted that the delay in financing at the beginning of this year has already led to a downward revision of real GDP growth in 2024, but the receipt of more than $10 Bln at the beginning of April and the adoption of the US support package will ensure a stable passage of the budget year, which will also support further economic recovery.”
Analysts at the EIU commented on the outlook:
“Growth will be driven primarily by government consumption, as was the case in 2023, as well as recovering private consumption (supported by lower inflation and recovering real wages). Overall, steady external financial flows and fiscal expenditure will underpin investment. Deepening ties with the EU as part of Ukraine’s accession process will also have a positive effect on the country’s ability to realise its export potential and attract investment.”