The crisis deepens: NBU identified five reasons for the fall of the Ukrainian economy

Large and medium-sized business in the country turned negative for the first time in 2016

The main reasons for the decline in the Ukrainian gross domestic product (GDP) in the first quarter of 2020 was the consequences of quarantine, a sharp decline in investment, low consumption, poor expenditures in the public sector and reduced exports. This was announced by the national Bank of Ukraine (NBU).

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“The Ukrainian economy fell by 1.3%. The main reason – the negative impact of quarantine on the service sector, the rapid decline in investment, lower costs in the public sector, slow growth in private consumption and exports. Investment fell to the level of crisis 2014-2015. Gross fixed capital formation fell by 21.4%. Thus till the beginning of coronaries Ukrainian businesses had positive expectations of the investment”, – stated in the message.

The NBU emphasize: for the first time from 2016, large and medium-sized enterprises formed a net loss. Thus, the share of unprofitable enterprises increased in the first quarter of 2020 and up to 41% compared with 27% in the first quarter of 2019.

“This was one of the main reasons for the decline of investment. Because 65% of capital investments are financed by own funds of the business”, – explained the specialists of the national Bank.

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But household spending grew despite coronaries. However, this growth slowed to 8.1%. NBU calls such reasons: slower growing incomes, deteriorated consumer sentiment and changed the behavior of the Ukrainians because of the quarantine.

“Citizens less money spent on commodities. Another reason for less consumption – the ban on non-food shops and markets. But increased Internet Commerce”, – reported in the NBU.

The consumption of the public sector continued to decrease by 9.7% due to the difficult income situation. Worse is the performance of almost all sectors. The largest negative effect was observed in the transport sector and most service sectors.

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Ukrainians began to live better: how to change prices and wages for five years

In the national Bank forecast that second-quarter GDP decline worse. The reason the quarantine action during the quarter.

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“Economic activity and employment have rebounded after the easing of the quarantine in mid-may. However, the data indicate that the decline for the year is likely to be more severe than expected in the previous forecast”, – according to the national Bank.

In the Cabinet, by the way, expect the fall of the Ukrainian economy in 2020 may reach 4-8%. While the government has already warned that we should not expect a very quick end to the crisis. Read more about how the Prime Minister assesses the situation in Ukraine, see story: