Ukraine Recession Deepens as Economy Shrinks — 2nd Update

By Laura Mills

KYIV, Ukraine–Ukraine’s economy shrank by more than one-sixth in the first quarter, hammered by a conflict with
Russia-backed separatists in its east that has slashed industrial output.

Government data show a contraction of 17.6% compared with the same period last year–the largest slide since the
economic crisis in 2009–as fighting with Russia-backed separatists simmers in the east of the country. Ukraine reached
a cease-fire deal with the separatists in February that has reduced–but not ended–clashes. Talks over a longer-term
political resolution to the conflict have stalled

Economists said the slide in output was worse than forecast, but that it was likely to be the worst of the year, as
the economy’s plunge began last summer as fighting picked up. Ukraine’s government has forecast a 5.5% contraction this
year, but the World Bank said last month that Ukraine’s economy would shrink by 7.5%.

The State Statistics Service, which released the figures Friday, said gross domestic product slid 6.5% from the
final quarter of 2014. Exports to Russia were down 61.3% to $1 billion in the first quarter, while exports to the EU
slipped one-third to $3.3 billion, the agency said, as industrial output shrank more than one-fifth.

Olena Bilan, chief economist at Dragon Capital brokerage, said the economy also has been damaged by shrinking
domestic consumption after the country’s currency collapsed and inflation shot up to more than 60% on the year in April.
Retail spending was down 31% in March compared with the same month last year, according to Dragon Capital.

Certain sectors are showing that the economy is testing the bottom, said Alexander Valchyshen, head of research at
ICU investment firm. He cited transportation and agriculture as examples of industries experiencing a turnaround.

“Going forward I think the stronger decline we are having in the first quarter, the stronger rebound in the second
half of the year, because last year it was the second half of the year when we started registering the collapse,” he
said.

In Russia, meanwhile, GDP fell 1.9% in the first quarter compared with a year earlier, the Federal Statistics
Service said Friday. The government expects the economy to shrink 3% this year, hurt by Western sanctions and lower oil
prices. But officials in recent weeks have said the worst has passed.

“What we saw as possible scenarios in October, November, December–the worst scenarios haven’t happened. We can’t
say that everything’s healthy. The economy is in a tough condition but (there is no) crisis condition,” said First
Deputy Prime Minister Igor Shuvalov, according to the Interfax news agency.

Write to The Moscow Bureau at djnews.moscow@dowjones.com 


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