17/5/15: Ukraine's GDP down 17.6% in 1Q

Some pretty bad numbers out of Ukraine this week. 

Remember that 1Q 2015 Russian GDP shrunk 1.9% y/y in real terms and the forecasts for 2015 full year decline range between 3% (official forecast) to north of 7% (some Western banks analysts), with the consensus at around 3.8-4.0%.

Now, Ukraine's economy is in the IMF programme and the Fund latest forecast for 2015 full year growth was -5.548%. That is the base on which the so-called debt sustainability analysis is based. Even the World Bank - which forecast -7.5% real GDP decline for 2015 - was contrarian to the IMF optimism.

However, this week official data shows real GDP decline of 17.6% in 1Q 2015 y/y and down 6.5% on 4Q 2014. Exports to the EU are down 1/3rd, exports to Russia down 61% and industrial output is down more than 20%. With inflation at around 60% y/y in April, retail sales are down 31% at the end of 1Q 2015 y/y. 

Good news is - it is likely that 2H 2015 will see some improvement in Ukrainian growth dynamics, just as the same is likely in Russia. But I fear that we are going to see a much sharper contraction for the full year overall, compared to the IMF forecasts. If that turns out to be the case, Ukraine can require restructuring of its IMF 'assistance' package, although much of that risk also hinges on the progress on haircuts negotiations with the private sector creditors. These negotiations have not been progressing too well, so far, but there may be a turnaround in the works. 

In short, Ukraine's 'debt sustainability' charade the IMF has put up is now firmly in crosshairs of two risks - the haircut slippage and economy collapse. And both risks are rising, not falling so far…