Ukraine’s industrial production continues to rise steadily up 3.8% year-on-year in June from 1.2% in May. The gain shows that industrial activity is picking up after only a 0.4% in the first half of this year, according to Ukraine’s state statistics office. However, the big blow is agricultural production was down and has been sliding this year, due to the bad weather in May. 

In seasonal adjusted terms industrial production did less well in monthly terms, rising 0.5% m/m in June against 1.6% in May, but in annual terms it did even better, accelerating 3.3% in June y/y against no change in May. But reading the statistics at the moment must be taken with a pinch of salt as the low base effect following the near total collapse of the economy in 2015 is distorting all the results. Nevertheless all these results are clearly positive and the recovery momentum is clearly picking up steam. The low base effect is due to work its way through in July, after which the statistics will be more representative of what is actually going on. 

“With the low comparison base effect set to disappear starting from July, we expect y/y IP growth to fluctuate around zero in the coming months, bringing the full-year tally close to our forecast of 0.0% y/y,” the Dragon Capital brokerage in Kyiv said in a note.

The same general trend upwards is seen elsewhere too. Retail turnover continued to expand, up 9% in June, which is down a bit from 10.7% in May y/y but that represents a 7.3% y/y in the first half of this year. To put this in context: retail turnover collapsed by 24.6% in the first half of 2015, the bowl of the crisis.

Consumption is a major driver of any economy and the acceleration in the first half bodes well for growth this year, even if the official forecast was downgraded to 1.9% thanks to the government’s economic blockade on the Donbas. There is even some optimism: Dragon Capital are predicting better than official forecast fo 2.2% growth this year and 3.3% for next. 

Another big economic driver is doing well: construction surged by 32% y/y, accelerating from 25% in May and boosting the January-June tally to 25% y/y. Looking at construction in hryvnia terms and the progress is clearly a lot less steady with most money being invested in the first quarter of the year. However, this sum has risen steadily in the last three years from UAH2.8bn in 2015 to UAH3bn in 2016 and this year it was UAH3.7bn. 

 

Freight and passenger transportation turnover both rose by 9% y/y in the first half of this year, in line with previous months.

But the disappointment was with agricultural production, which fell 4.6% y/y in June against a -3.0% fall in May for a total declining of 2.1% y/y in in the first half of this year.

Agricultural producers across the region have been hampered this year by the poor weather in May which has at best delayed the harvest by up to three weeks, say experts. It remains unclear if the bad weather will hurt the yields, but so far Ukraine is expecting to have a normal harvest. 

“The acceleration in construction reflects a combination of robust household demand for real estate in large cities, investment spending by the private sector, and increased government investment in road construction. The weakness in agriculture was caused by a later start to the harvesting season, lower crop yields, and the lasting impact of the African swine fever outbreak, which led to a sizable YTD contraction in pig farming,” Dragon Capital said. 

Despite the improvement in the investment climate and the slow return of a normal operating environment, in nominal currency terms the economy is still failing to show much improvement.