Ukraine’s Economy Back in Recession as Virus, Rate Hikes Weigh

(Bloomberg) -- 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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