Ukraine Economic Overview, July 2014

Ukraine's macro situation will remain challenging in 2H14, although the risks will change. The sizable hryvnia depreciation cured the extensive external account misbalances and has brought much-needed stability to the FX market. Meanwhile, the situation in the real sector will worsen due to a slump in private demand and the military conflict in Eastern Ukraine.

The economic decline in 1H14 was limited and overall the economy exceeded our expectations. The decline in industrial output stabilized at close to 5% yoy, while cargo transportation turnover recently improved slightly, with 1H growth just in the green at +0.4%. We estimate the 2Q contraction at 4-5% yoy vs. 1.1% yoy decrease in 1Q.

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