Ukraine's economic growth rate slows in May as Russia hits power sector

June 19 (Reuters) - Ukraine's economic growth rate slowed in May compared with the previous month of the year as Russia's bombardment of the power sector created an electricity deficit and led to blackouts across the country, officials and analysts said on Wednesday.

The data suggested drone and missile strikes on the power grid that began in March could hamper Ukraine's fragile recovery after the economy shrank by a third in the first year of Russia's full-scale invasion.

Economy Minister Yulia Svyrydenko said gross domestic product grew by 3.7% year-on-year in May after government data showed GDP rising by 4.3% in April.

Svyrydenko said GDP grew by 4.3% from January to May compared to the same period last year.

"Growth was driven by exports and construction demand. Industries such as metallurgy and machinery saw a recovery," she said in a post on X.

Kyiv-based think tank IER said in a research note that Russian aerial attacks on the power sector were one of the main reasons for the slowdown in economic growth.

Russian air strikes have knocked out about half of Ukraine's power generating capacity since March and caused sweeping blackouts for businesses and residents, Kyiv officials say.

"As the power generation was damaged, electricity supplies for businesses were restricted," said the IER, adding that business would in the future need to invest in "decentralized electricity generation".

Another think tank, the Centre for Economic Research, said Ukraine's electricity imports in May had reached their highest levels since Russia's full-scale invasion in February 2022.

This month the deficit in the power system increased further, resulting in Ukraine importing a record 25-27 gigawatt hours on a daily basis, it said.

The power system was hobbled in the first winter of the war and the economy shrank by about a third in 2022.

As businesses adjusted to wartime realities, GDP grew by 5.3% in 2023. But because of Russian attacks on the power sector, Ukraine was forced to cut its growth forecasts for this year.

The central bank cut its forecast for GDP growth to 3% in 2024 from 3.6% initially. (Reporting by Yuliia Dysa and Olena Harmash; Editing by Tom Balmforth and Timothy Heritage)