Operative estimates of the State Statistics Committee show that Ukrainian real GDP in Q122 contracted by 19.3% q-o-q and 15.1% y-o-y.
The slump in growth will likely continue to steepen over the coming quarters as the Russian invasion will continue take a heavy toll on the Ukrainian economy, with real GDP due to contract by 35% in 2022 according to our forecasts.
With combative activities now concentrated in the Donbas, the fallout will be most severe in the industrial heartland of Ukraine while economic activity in the West of the country has scope to gradually recover.
The outlook for the Ukrainian economy continues to be severely undermined by the Russian invasion, underpinning our forecast for real GDP to contract by 35.0% in 2022. Data from the State Statistics Committee show that output of the economy in Q122 contracted by 19.3% q-o-q and 15.1% y-o-y. This marks the sharpest drop in output since Q115, which was prompted by Russia’s first but lower-scale invasion of the country in 2014. Looking ahead, as we do not expect fighting in Ukraine’s main industrial heartland, the Donbas, to stop in the immediate term; we expect real GDP declines to steepen.
We retain the view that all expenditure components of Ukraine’s real GDP will contract in 2022 (see right-hand chart above). The component-wide contractions were likely already evident in Q122, for which the State Statistics Committee has not yet released a breakdown. The publication of the breakdown will likely remain outstanding, as the country’s statistics service has postponed publishing high-frequency data since the start of the war.
|Population In 2021, mn||Share Of GDP, As Of 2019||Share Of Industrial Production, As Of 2020||Share Of Goods Exports, As Of 2020||Share In Agricultural Production, As Of 2020||Share Of FDI Stock, As Of 2020|
|Total excluding Kyiv and Kyiv City||11.81||18.30||23.40||18.30||25.80||11.50|
Ukraine’s Easternmost territories will be most negatively affected by the war. Indeed, after retreating from capital city, Kyiv, in early April, Russia began to concentrate its offensive in the industrial and agricultural heartland in the Donbas region of Ukraine. Taken together, these territories account for around 20% of Ukraine’s total GDP, while around 25% of the country's agricultural production capacity is located in the fought-over territories (see table above). Economic output throughout the frontline territories is unlikely to recover as long as the conflict in the region remains active. Even so, and noting that war has completely destroyed many productive capacities in the region, the territories would likely lack the human capital to restore commercial activities. In this regard, data from the UN Refugee Agency (UNHCR) show that more than 7.0mn people have fled Ukraine, while another 8.0mn have been internally displaced (see map below).
Meanwhile, the economic outlook for Western Ukraine is gradually improving. Data from the National Bank of Ukraine show that commercial activities in the West of the country are now returning to pre-war levels (see left map below). Similarly, survey results of the European Business Association (EBA) among representatives of small- and medium-sized enterprises (SME)s show that SMEs have been gradually resuming operations for a third month in a row (see right-hand chart below). However, the country-wide overall rate of capacity utilisation still remains 40% below pre-war levels.
Risks To Outlook
The risks to our growth outlook for Ukraine remain significantly stacked to the downside and primarily evolve around the duration, intensity and geographical scope of the war. For now, our core view remains that the war will remain concentrated in Eastern Ukraine, before the war eventually transitions into a stalemate towards the end-of the year. However, if Russia were to make further territorial gains in the Donbas (Luhansk is now almost completely under Russian control) it could regroup its forces and initiate another advance to capture Kiev. Such a scenario would again lead to the suspension of commercial activities in larger parts of the country, reducing real GDP by more than the 35% we have currently baked into our forecasts.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.