Ukraine: Political uncertainty and economic slowdown

5 min
Manfred Stamer
Manfred Stamer Senior Economist for Emerging Europe and the Middle East

Last week, Ukraine’s new President Volodymyr Zelensky made his first foreign trip since his inauguration on 20 May, visiting officials of the EU and NATO in Brussels. He reconfirmed Ukraine’s commitment to aim for accession to both institutions. However, this move is likely to complicate the restart of peace talks with Russia and end the war with Russia-backed separatists in east Ukraine, a goal that Zelensky has declared as his top priority. On the economic front, Q1 real GDP growth decelerated markedly to +0.2% q/q (from +1.1% in Q4) and +2.2% y/y (from +3.5% in Q4). Details have not been released as yet but monthly indicators suggest that the industrial sector was a key drag on Q1 growth. Industrial production contracted by -0.8% y/y in Q1 2019, compared to -0.4% in Q4 2018 and +2.9% y/y growth in Q1 2018. However, the sector rebounded to +5.3% y/y growth in April 2019. Overall, we forecast full-year GDP to expand by +2.4% in 2019 (after +3.3% in 2018) and +2.5% in 2020.