Ukraine Exits 18 Months of Recession to Face Meager Recovery

  • GDP advances 0.7% from 2Q while annual decline continues
  • Faster reform, graft fight key to revival, Dragon Capital says

Ukraine’s economy exited 1 1/2 years of recession last quarter, reaching a milestone toward what officials predict will be a drawn-out recovery.

Gross domestic product rose a preliminary 0.7 percent in July-September from the previous quarter, the State Statistics Office said Monday, buoyed by a modest industrial revival and relative peace in the nation’s east. The annual decline eased to 7 percent from 14.6 percent in the second quarter and as high as 17.2 percent in the first. That’s less than the 9.5 percent median forecast in a Bloomberg survey of five economists.

A cease-fire in Ukraine’s 19-month conflict with pro-Russian militants has allowed companies to boost production and eased pressure on the hryvnia, this year’s fourth-worst performer against the dollar. While the government is trying to turn the economy round with help from a $17.5 billion International Monetary Fund loan, growth may only rebound by 1 percent to 2 percent in 2016, according to investment bank Dragon Capital.

“Consumption, investment and exports will improve slightly,” Olena Bilan, Dragon’s chief economist, said by phone from Kiev on Friday. “Reform progress next year will determine Ukraine’s  future growth model -- whether it embarks on a sustainable, investment-driven growth path or remains a volatile economy driven by consumption and exports.”

The central bank is a little more optimistic, forecasting economic expansion of 2.4 percent in 2016 after this year’s projected 11.5 percent contraction. Industry is one bright spot, with Metinvest, the nation’s biggest metals producer, reporting that output at its iron and steel plant in Mariupol, on the edge of the conflict zone, jumped 16 percent from the previous three months in the third quarter.

Reform efforts, including a crackdown on corruption, are key to the flow of aid from the IMF and other ally governments such as the U.S. and Japan. U.S. Treasury Secretary Jack Lew reiterated Friday to reporters in Kiev that assistance in the form of loan guarantees hinges on progress to revamp Ukraine’s economy and institutions.

“The more we do, the more we’ll get,” Prime Minister Arseniy Yatsenyuk told the same news conference.

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