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Battered Ukraine economy

May 15, 2015

The economy in Ukraine has taken a nosedive in the first months of the year, contracting more than analysts predicted. The news comes as Kyiv negotiates a debt restructuring deal with creditors.

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Coal-fired plant in Luhansk EPA/ANASTASIA VLASOVA
Image: picture-alliance/epa/A. Vlasova

Ukraine's gross domestic product (GDP) shrank by a staggering 17.6 percent in the first quarter of 2015 compared to one year ago, the country's national statistics agency reported Friday.

Quarter-on-quarter, the economy contracted by 6.5 percent, the office added, pointing to the ongoing conflict in Ukraine's industrial east where the Ukrainian army is still fighting pro-Russian separatists.

Leading economic institutions, including the World Bank and European Bank for Reconstruction and Development (EBRD, predicted Ukraine would log a 7.5-percent decrease in output for the full year.

Cash-strapped government

The World Bank noted in a statement that the freefall of the Ukrainian economy could only be stopped if the fighting in the embattled east stopped and the country's banking system was given a chance to recover.

In April, Ukraine's inflation rate surged to 60.9 percent. The national currency, the hryvnia, has lost half of its value since the conflict with separatists began.

Officials in Kyiv have meanwhile been trying hard to secure a deal with creditors on the restructuring of a least part of its debt load.

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Earlier this week, Finance Minister Natalie Jaresko had criticized the nation's creditors for not assuming a more constructive role in negotiations.

"I hope our creditors understand our problems, because we need to reach an agreement on a second bailout tranche soon," she said. Ukraine had received a first $5 billion (4.4 billion euros) under the rescue program in March.

Russian economy shrinks too

Separatist violence has not only weighed on Kyiv. On Friday, Russia's statistics agency logged a 1.9 percent decline in the country's GDP on the quarter compared to one year ago.

Russia's economy has been under pressure from western sanctions over its role in the fighting in Ukraine. Low oil prices - Russia's main export - have also been a drag on growth.

The contraction was less than most analysts had expected, however, signalling that the worst of the unfavorable economic conditions may be over.

This article was updated at 5:45 p.m. on Friday, May 15, to include data on Russia's economy.

hg/cjc (AFP, dpa)