OREANDA-NEWS. Yesterday the State Statistics Service of Ukraine published fourth-quarter (broken data by components) and full-year GDP data for 2015. In particular, the revised data suggest that in the fourth quarter seasonally adjusted real GDP grew by 1.4% q-o-q. In annual terms, the decline in GDP moderated to 1.4% in the fourth quarter (according to preliminary assessment – 1.2%). These figures reflect improved business expectations amid a freezing of the military conflict in eastern Ukraine.

The Q4 GDP data broken down by  final  consumption sectors suggest a recovery in  the gross accumulation of fixed capital (capital investments) and public sector consumption (by 1.4% y-o-y and by 8.1% y-o-y respectively).   The fall in household consumption slowed to 13.2% y-o-y[1], reflecting  a slower pace of decline in households' real wages. The pace of  decline in exports slowed sharply to 5.8% y-o-y  lagged behind that of imports (by 17.3% y-o-y).  This led to significant positive contribution of net exports to the GDP change (up to 6.4 percentage points).

The slowdown in the pace of GDP contraction outperformed the NBU’s expectations. The NBU’s estimates are based on high-frequency data on economic activity across the sectors, such as industry, agriculture, trade, transport and construction (the gross value added created in these sectors accounts for 55% of GDP). The gross value added figures in these sectors were in line with the NBU's expectations, except construction, which surprised on the upside.  At the same time, the deviation of actual data from the NBU estimates can be attributed to stronger services sector data for which high-frequency data are not published. In particular, the education and health care, government, defense, information and communication sectors, as well as professional, scientific and technical activities  sectors saw   a reversal of the downward trend in the gross value added.

For the full year, real GDP contracted at an average annual rate of 9.9%, underperforming the NBU's GDP contraction projections of 10.5% published in the January 2016 Inflation Report.  The decline in economic activity was recorded across all sectors of the economy, except health care sector, posted moderate  annual growth.  There was a sharp  decline in gross value added in the industrial and trade sectors (by 13.5%[2] and  16.8% respectively). It should be noted that the sharpest decline was recorded in the first half of 2015, primarily due to the military conflict in Donbas. The impact of the conflict was both direct (due to the destruction of manufacturing facilities and transport infrastructure and the disruption of economic links between) and indirect (due to investors' reassessment of geopolitical risks, capital outflows and jitters  gripping the public and the the worsening of business expectations).  Also contributing to the decline in real GDP were falling global commodity prices, trade curbs imposed by the Russian Federation, prudent monetary and fiscal policies, as well as the weaker consumer purchasing power.   This led to a substantial decline in private consumption, investments and exports, which was partly offset by a further decline in imports.  At the same time, quarterly GDP data point to gradual recovery in economic activity across most sectors of the economy in the second half of 2015.

During 2015, the economic developments were in line with the NBU’s expectations. In particular, as expected, net exports helped restrain a decline in real GDP in 2015.  The contribution of net exports to the GDP change has remained  positive since the second quarter of 2015.  Despite the fact that in annual terms,  exports kept declining, the positive contribution from net exports reflected a deeper contraction in imports relative to exports amid hryvnia's depreciation and contraction of domestic demand.As anticipated, investment recovery began in the second half of 2015, although somewhat later than we expected (in the fourth quarter, rather than in the third as previously expected). As expected, a  fall in private consumption remained a major contributor to the decline in real GDP, despite the fact it lost momentum in the second half of 2015. Although helped by a low comparison basis,  a significant accumulation of stocks of material and technical means  resulted in a  positive contribution to the GDP.

The NBU expects  economic growth to recover further in 2016, albeit at a slow pace of about 1%. The economic growth will be supported by improved expectations, the restoration of economic links between regions amid the macro-financial stabilization and  the de-escalation of the military conflict in eastern Ukraine, as well as a low comparison basis. At the same time, moderate economic growth rates can be attributed to the turbulent external environment (sluggish global economic growth, low global commodity prices, and restrictions on the transit of Ukrinainian goods through the territory of the Russian Federation) and other factors. The increased political instability Among other factors  weighing on Ukraine’s economic growth.