Ukraine current account hits deficit in July

2016/8/31 16:16:22

Analyst: “Since the trend is in line with our initial estimates, we are keeping our C/A deficit forecast unchanged at USD 4.0 bln (4.5% of GDP) for 2016.”

 


KYIV, Aug 31, 2016 (UBO) - Ukraine’s current account (C/A) balance hit a deficit of USD 354 mln in July after a USD 241 mln surplus in the prior month, Concorde Capital informed clients, based on a National Bank report of Aug. 30. The main factor was a substantial worsening of the trade deficit to USD 566 mln from USD 131 mln in the prior month. Worsened balance of incomes (USD 19 mln deficit after a USD 121 mln surplus in June) on the back of stronger interest payments also contributed to the deficit.

 

An accelerated exports decline (-8.2% yoy in July from -6.6% yoy in June) amid a steady revival of imports (2.0% yoy from -0.7% yoy in June) secured a sharp trade deficit expansion. Exports of goods plunged 10.1% yoy on the back of falling machinery (-24.8% yoy) and metals (-14.6% yoy).  Commodity imports grew 1.4% yoy on the back of non-energy imports (+11.3% yoy) with machinery imports (+31.8% yoy) leading the growth. Energy imports declined (-27.6% yoy) in July though the rate substantially slowed compared to 52.5% yoy contraction in 1H16.

 

Financial and capital accounts saved the balance of payments, which improved to a USD 464 mln surplus in July after a USD 136 mln surplus in June. The main factor was stronger FDI (USD 291 mln vs. USD 190 mln in June) and better “other investments” (USD 557 mln inflow vs. USD 2 mln outflow in June).

 

The general balance (sum of the C/A balance and financial and capital accounts balance) was reported at a USD 110 mln surplus, which is lower than the prior month (USD 377 mln). The general balance surplus translated into a 0.7% gross international reserves increase that reached USD 14.1 bln (3.6 months of future imports) by the end of the month.

 

In 7M16, Ukraine’s C/A deficit reached USD 538 mln (up 7x yoy) while the general balance remained in surplus (USD 516 mln).

 

Concorde analyst Alexander Paraschiy added: “The return of a C/A deficit after three months of surplus is exactly what we expected for 2H16. Remarkably, this occurred against a backdrop of still low natural gas imports (0.4 bcm in July). Given that we expect energy imports will accelerate (at least 1.5 bcm in average monthly gas imports starting this month, plus resumed coal imports and boosted nuclear fuel purchases), the C/A deficit is destined to expand even further. Since the trend is in line with our initial estimates, we are keeping our C/A deficit forecast unchanged at USD 4.0 bln (4.5% of GDP) for 2016.”

 

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