GDP growth deteriorates in Q2

GDP reading: According to a preliminary estimate, GDP grew 3.7% annually in Q2 (Q1: +6.5% yoy). On a seasonally adjusted quarterly basis, the economy expanded 0.2% in Q2, weakening from the prior quarter’s 1.2% rise.

Drivers: Absent a full data breakdown, the annual growth moderation likely stemmed from weaker industrial activity and energy output. More positively, other sectors of the economy showed resilience in the quarter. Moreover, surging credit growth plus lower interest rates and average inflation will have boosted domestic demand. On the external front, growth in nominal exports of goods reached the highest rate since Q4 2021 in Q2, pointing to an improvement in trade flows despite the war. Meanwhile, nominal goods imports rebounded.

GDP outlook: Our panel expects GDP growth to cool further by year-end, capped by Russia’s heavy attacks on the energy grid. Over 2024 as a whole, the economy will rise by less than in 2023 as the expansions in household spending, public consumption and fixed investment all slow from last year. On the flipside, rebounding exports and foreign aid inflows will provide tailwinds 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 the EIU commented on the outlook: “We expect the economy to grow by 3.6% in 2024, with growth affected by extensive Russian strikes on energy infrastructure, exacerbated by funding delays in the first half of the year. Annual real GDP growth is set to remain at a similar pace in 2025, as disruption to energy infrastructure will also affect growth next year.”

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