UKRAINE Q1 GDP FALLS 20.3 PERCENT

UNCLAS KYIV 001102

SENSITIVE
SIPDIS

DEPT FOR EUR/UMB, EEB/OMA

E.O. 12958: N/A
TAGS: EFIN ECON ETRD PREL PGOV XH UP
SUBJECT: UKRAINE Q1 GDP FALLS 20.3 PERCENT

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Outside the USG.


1. (SBU) The Ukrainian State Statistics Committee published
official 2009 macroeconomic figures on June 30. The first quarter
data, which had been withheld for weeks by the government of Prime
Minister Yulia Tymoshenko, revealed a 20.3 percent contraction in
GDP and a sharp fall in key sectors of the economy. The GOU
released its figures to correspond with the June 30 arrival of IMF
mission head Ceyla Pazarbasioglu, who is in Kyiv to negotiate terms
for disbursing the Fund's third loan tranche. The IMF had been
critical of Tymoshenko's refusal to reveal official economic
statistics for the first quarter, saying that it could not
accurately forecast annual GDP or the 2009 fiscal deficit. The GOU
had not released economic figures since it gave up monthly GDP
reporting in February.


2. (SBU) With the GDP plunge of 20.3 percent year-on-year (y/y) in
the first quarter of 2009, Ukraine suffered the worst economic
contraction in the Central and Eastern European region. The figure
was in the range of what many private and official analysts had
expected. The Presidential Secretariat, the National Bank, and the
State Accounting Chamber had all recently come forward with
estimations ranging from 20 to 23 percent first quarter GDP decline
(y/y). The contraction in the first quarter was measured against
the still robust first quarter growth of 2008. Annualized GDP
growth fell significantly during the course of 2008. Hence most
analysts expect GDP to contract by anywhere from 10 to 15 percent in
2009 on account of the base effect in the data. Before the most
recent data were published, the IMF and World Bank had confided to
us that they had already begun revising their 2009 GDP forecasts and
were expecting a roughly 12 percent contraction, although officially
they were still projecting an 8 and 9 percent drop in GDP,
respectively.


3. (U) The construction sector was the hardest hit, falling 54.1
percent in the first quarter (y/y),followed by the processing
industry (36.5 percent decline) and utility services (19.3 percent
decline). Agriculture was the only sector that escaped a decline,
having gained 1.3 percent in the first quarter (y/y). Household
consumption fell 11.6 percent (y/y). Previously released figures
had indicated that industrial output had declined by 32 percent for
the first quarter (y/y),including a 39.7 percent fall in the
chemical sector and a 43 percent drop in metallurgy.


4. (U) State Statistics Committee figures on unemployment also
showed significant negative trends for 2009. The unemployment rate
(using the International Labor Organization's methodology) for the
first quarter stood at 10.3 percent for those of working age,
compared to 7.6 percent for the same period in 2008. Unemployment
had hit a low of 6.5 percent in the third quarter of 2008, just
before the effects of the economic crisis began to reach Ukraine.

PETTIT