Ukraine’s economy entered in a recession in the fourth quarter of 2008 as the world financial crisis uncovered and aggravated weaknesses of the national economy. Real GDP growth decelerated from 6.3% yoy for the first nine months to 2.1% yoy for the year because of sharp decline in real exports and slowed households’ consumption due to credit crunch. In nominal terms GDP constituted around UAH 949.9 bn (USD 180.3 bn) in 2008.
In the first two quarters real GDP was growing at 6.3% yoy, mainly driven by flourishing households’ consumption on the demand side and uprising manufacturing on production side. In the third quarter agriculture took up real GDP growth to 6.4% yoy due to rich harvest of crops. However, since the end of August the economic conditions have already started getting worse as external demand and prices for metals gone down and credit crunch paralyzed domestic consumption and investment demand. Main sectors of economy – manufacturing and trade – responded with rapid decrease in value added.
On demand side, households’ consumption has been decelerating since the mid of the year due to growing costs of credits and slowing real disposable incomes (see Wages and incomes). Real final consumption of households slowed down from 22.5% yoy in the first quarter to 14.1% yoy in the third quarter. In the fourth quarter incomes were further hurt by economic crisis with lowering wages and rising unemployment (see Labour market), and consumption borrowings were restrained by credit crunch. Moreover, due to sharp devaluation of hryvnia households faced much more expansive imported goods and debt service on foreign currency credits. These factors exerted significant downward pressure on private consumption. On the other hand, hryvnia devaluation also stimulated short-term consumption boost as households tried to spend available hryvnia in fear of further devaluation. This factor and traditional high spending of holiday season somewhat supported households’ consumption in the end of 2008 (real households’ consumption grew by 1.6% yoy in the fourth quarter), delaying sharp drop in spending to early 2009. According to estimates of Derzhkomstat, the real households’ consumption grew by 11.8% for the whole year.
