Ukraine’s economy back in recession as virus, rate hikes weigh
One of Europe’s slowest vaccination campaigns holding back a rebound driven by consumers and agriculture
Ukraine’s economy fell back into recession as fallout from the pandemic continued to weigh and interest rates were lifted to tackle soaring inflation.
Second-quarter gross domestic product shrank a seasonally adjusted 0.8% after falling 1.2% in the previous three months, preliminary data Monday showed. On an annual basis, it ended more than a year of contraction, advancing by 5.4%, though that was some way off analyst estimates for a 7.3% increase.
While new Covid-19 infections have stabilized and most restrictions to stem the disease’s spread were lifted in May, Ukrainians have endured one of Europe’s slowest vaccination campaigns, holding back a rebound economists expected to be driven by consumers and agriculture. What’s more, with just 6% of the eastern European country’s 41 million population fully inoculated, the more transmittable delta strain is taking hold.
The result marks the second time since the pandemic erupted that Ukraine’s economy has shrunk for two straight quarters and will come as a blow to investors in the country’s GDP warrants -- instruments issued during a 2015 debt restructuring that pay out based on the level of growth.
The question now is how much this will drag down full-year forecasts. The central bank had been predicting expansion of 3.8% for the whole of 2021, though warned that a monthlong lockdown triggered with the delta variant could shave 0.6% off that.
But a bigger headwind may come from inflation, which is pushing the bank to add to this year’s three increases in benchmark borrowing costs
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