Consumers Stir to Life as Ukrainian GDP Rumbles to Milestone

  • Economy had first growth from year earlier since 2013
  • Rising steel, iron ore prices boosted industrial output

The gloom is clearing over Ukraine’s beleaguered consumers.

Faced with a war on the border with Russia and a devaluation that sent inflation shooting past 60 percent, crumbling domestic demand kept the economy shrinking for eight straight quarters on an annual basis. Buoyed by a spending revival, that slump ended in the first three months of 2016, when gross domestic product edged up 0.1 percent. Even so, the result missed economist forecasts, while GDP shrank from the previous quarter.

“Consumer confidence is rising gradually on the back of low inflation, nominal
wage growth and overall macroeconomic stability,” said Olena Bilan, chief economist at Dragon Capital in Kiev, said by phone before the data were released. “The recent increase in steel prices may have translated into higher salaries and capital investments.”

Ukraine’s economy is healing from the recession that followed its second street revolution in a decade. The hryvnia, which lost more than a third of its value last year, has stabilized, inflation has eased below 10 percent and a fragile cease-fire in the nation’s separatist conflict is encouraging companies to invest.

Headwinds remain: even after a government revamp, political turbulence could still trigger new elections, while reforms needed to restart a $17.5 billion bailout have been delayed. Some may be debated this week in parliament.

Retail sales rose 1.6 percent from a year earlier last quarter after a 23.9 percent plunge in the same period of 2015. Industrial output advanced 3.7 percent following the previous year’s 20.5 percent dive.

A global rally in steel and iron ore prices has buoyed production, according to Konstantin Fastovets, chief economist at Kiev-based Adamant Capital. He also noted the first expansion in the retail and wholesale industries since the conflict erupted.

“People raised spending as their nominal salaries grew and consumer confidence improved,” Fastovets said by phone.

First-quarter GDP contracted 0.7 percent from the previous three months after economists estimated a 0.5 percent advance. The Economy Ministry predicts it will expand 2 percent in 2016 as a whole, a more optimistic view than the International Monetary Fund, which sees growth of 1.5 percent.

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