Ukraine Watch: Real sector data shows improvement despite restrictions

In March sectoral indices reflected mixed trends, with index of key sector output remaining broadly unchanged (-0.1% yoy). Retail trade posted impressive growth, while construction shrank considerably. Industrial production rose marginally, while agricultural production declined.

Chart 1 - Real Wage & Retail Sales, USD nominated Wage
Ukrstat, RBI/Raiffeisen Research

The industry showed weak growth in March, with construction recording a double-digit drop resulting from adverse weather conditions

Weak growth was observed in industry (2.1% yoy) given the change in output in manufacturing of 2.5% and in electricity production of 7.3%. Overall, however, the industry contracted by 2% in Q1'21. Significant growth was recorded in retail trade, which accelerated to 13.1% yoy in March. As a result, retail trade grew by 7.5% yoy in the first quarter. The low comparison base in April-May gives reason to expect strong growth in industry and retail trade. The quarantine restrictions imposed in April were not continuous and were not as severe as in 2020. In addition, businesses and households have long since adapted to the new conditions.

Chart 2 - Key sector indices
Ukrstat, NBU, RBI/Raiffeisen Research

Construction in March continued its trend of double-digit declines (-10.5% yoy). Building fell by 12.3% in the first quarter, mainly due to a significant fall in engineering construction (-19.1% yoy). However, improved weather conditions and the resumption of the public “Big Construction” programme will further improve the output in construction. Business expectations deteriorated in April, with the NBU's Business Activity Expectations Index worsening from 51.4 to 46.9 points in response to tighter quarantine restrictions in Kyiv and many regions.

–°argo turnover remains in negative territory; passenger traffic increased despite additional restrictions

Chart 3 - Passengers and Cargo Turnover
Ukrstat, RBI/Raiffeisen Research

In the coming months, many sector indices will show substantial gains

Such momentum is mainly due to the (low comparison) base effect and an acceleration of the recovery of business activity after lockdown. Despite a clear improvement in the epidemiological situation, the slow progress in vaccination of the population is not conducive to a speedy recovery of business activity. According to our estimates, a decrease in real GDP will be recorded in the first quarter of 2021 (around 1.5% yoy), but strong economic growth of up to 10% yoy will be recorded in the second quarter.