Ukraine economy likely fell 10% in second quarter, full recovery not seen this year

A robust performance in the farming sector, which has started the grain harvest, may offset some of the damage to the economy from the coronavirus pandemic.

Ukraine’s economy will be shown to have fallen 10% in the second quarter year-on-year due to restrictions to tame the coronavirus outbreak, and it will not be able to recover fully in the next six months, according to a Reuters monthly poll of analysts. It would mark the deepest decline since the economic aftermath of Russia’s annexation of Crimea and the outbreak of military conflict in the industrial east, which led to a 14.5% year-on-year fall in the second quarter of 2015, Reuters reported.

„Economic activity figures are likely to reveal the full extent of the crisis; we expect the decline to deepen to 10% year-on-year in the second quarter,” analysts for the ICU investment company said in written comments.

Ukraine has secured a US$5 billion loan deal with the International Monetary Fund to fight the economic slump, but the market was rattled last week by the shock resignation of the central bank governor.

A robust performance in the farming sector, which has started the grain harvest, may offset some of the damage to the economy from the coronavirus pandemic, but consumer demand and investor activity will remain weak in 2020, analysts said.

They forecast Ukraine’s gross domestic product to shrink 5.5% year-on-year in the third quarter and 3.0% in the fourth quarter.

The State Statistics Service will publish its second-quarter GDP data in mid-August. In the first quarter, the economy declined by 1.3% compared to 2.9% growth in the first quarter last year.

The twelve analysts polled by Reuters see the economy shrinking 6.5% for the full year compared to growth of 3.2% in 2019. The government expects a -4.8% drop in 2020.

„We project GDP to start recovering from 3Q20, but at a slow pace due to lower incomes and precautionary behaviour of consumers and investors,” the ICU said.

The government began imposing restrictions on businesses and people’s movement in March. It began easing those restrictions in May, allowing the operations of public transport, shops, hotels and open-air terraces of restaurants to resume.

But a sharp daily rise of new cases since then has prevented the government from relaxing more restrictions. Ukraine has reported 49,043 coronavirus cases, including 1,262 deaths.