Ukraine’s economy to contract by 11% in 2Q20 but recover in 2021, says NBU

By Ben Aris in Berlin May 5, 2020

Ukraine’s economy will contract sharply in the second quarter of this year, says the National Bank of Ukraine (NBU), before gradually recovering, but average growth will end 2020 with a 5% contraction.

The fall in real GDP will be 11.3%, similar, but not as bad as the 17% contraction seen in the second quarter of 2015 caused by the economic dislocation of the Euromaidan protests, the National Bank of Ukraine (NBU) said in its latest inflation outlook for 2020.

The collapse is a result of the coronavirus (COVID-19) pandemic lockdown, but as the government has already started to ease the restrictions, opening the markets at the weekend, the economy is expected to recover slowly in the following quarters.

The NBU estimates that the contraction in the third quarter will be 5.3%, and in the fourth quarter it will be 2.3%. The economy contracted by an estimated 0.5% in the first quarter. The average growth for the whole year is anticipated to be a 5% contraction.

"The Ukrainian economy will experience the greatest shock in the second quarter of 2020. The unemployment rate will rise to about 12% in seasonally adjusted terms, and wage growth will stop," the NBU said in its statement, as cited by Interfax Ukraine.

In 2015 the economy recovered quickly until the fourth quarter, when it contracted by 1.4% and went back to growth of 0.1% in the first quarter of 2016. This time round the economy is expected to follow a similar pattern, although while the deepest point of the contraction in this quarter is less than in 2015, the bounceback is expected to unfold a little more slowly: the NBU expects a slight contraction in the economy in the first quarter of next year, by 0.3%.


"The gradual lifting of quarantine will lead to the restoration of the Ukrainian economy in the second half of 2020. This will also be facilitated by soft fiscal and monetary policies. The increase in government budgetary spending to overcome the crisis and the National Bank's measures to maintain the banking system will reduce the negative impact of the pandemic on the economy," the regulator said.

However, growth in the rest of 2021 could be much more dramatic, largely due to the low year-on-year base effect. The NBU says growth in the second quarter of 2021 could soar to as much as 11.3, followed by 4.6% and 2.1% in the third and fourth quarters respectively, which will give an average GDP growth rate in 2021 of 4.3%.

The regulator went on to say that both the contractions and recovery will be unevenly spread over the economy, with some sectors doing less well and some doing better.

Sectors expected to do especially badly include: services sector, retail and transport, which will lose more than the averages and will still suffer from a slow recovery in population incomes. Tourism and related aviation services, according to the NBU, will fully recover in 2021.