Ukraine C/A deficit falls 2.8x in 1H14

Ukraine’s C/A deficit widened in June to USD 424 mln compared to USD 295 mln in May and USD 773 mln in the same year-ago month. The main factor was stronger income outflow, probably in the form of withdrawal of dividends (USD -331 mln vs. USD -181 mln in the prior month). The trade deficit on goods and services in June decreased to USD 228 mln from USD 271 mln in the prior month.



Through the month, imports contracted 18.4% yoy on the back of declining imports of metal (-40.2% yoy), machinery (-39.4% yoy), food (-22.9% yoy) and chemicals (-21.0% yoy). At the same time, the energy bill continued to grow (+30.8% yoy) despite Russia’s declared halt of gas supplies in June. Ukraine imported 2.0 bcm of gas in June, which is 2x more yoy.



Exports also declined substantially in June (-14.6% yoy) primarily due to sliding shipments of machinery (-24.2% yoy) and chemicals (-18.1% yoy). Food exports fell 4.5% yoy in June after surging 34.5% yoy in May, largely due to lower grain shipments. Surprisingly, metal exports continued growing, adding 5.3% yoy in June (compared to 8.0% yoy in May).



For 1H14, the C/A deficit reached USD 1.9 bln, or 2.8x less than a year ago (USD 5.4 bln), owing to a faster decline of imports (-16.6% yoy) vs. exports (-9.9% yoy). Non-energy imports, contracting 21.4% yoy, was the main factor behind the decline.



Financial and capital accounts were in red (USD -331 mln) compared to a USD 1.3 bln surplus in May, with a USD 1.0 bln Eurobond redemption being the main reason for negative result. At the same time, FDI was positive (USD 214 mln) and foreign cash even flowed into the banking system (USD 207 mln) for the first time since October 2013.



For 1H14, financial and capital accounts were reported USD 3.3 bln in black compared to a USD 7.6 bln surplus a year ago. Foreign cash outflow from the backing system (USD -2.9 bln in 1H14 vs. a USD 100 mln surplus a year ago) took the lion’s share of this outcome.



The general balance was reported with a USD 735 mln deficit in June. A USD 193 mln redemption to the IMF caused gross foreign reserves to contract by USD 928 mln to USD 17.1 bln (2.5 months of future imports) by the end of June.



Alexander Paraschiy: The situation with external accounts remains volatile. Still, the general trend of a shrinking C/A deficit is uncontested. In 2H14, we should see falling gas imports since the major part of gas purchase commitments had been done in 1H14 (14.7 bcm out of 27 bcm). Non-energy imports also keep declining at two-digit rates (-28.2% yoy in June). Export prospects remain under a big question mark, however so far their declines aren’t accelerating. Grain exports in the 2014/15 marketing year should match last year’s levels.



Regarding financial and capital accounts, prospects look positive after parliament yesterday rejected the resignation of Prime Minister Arseniy Yatsenyuk. IMF cooperation will continue and other Western donors will continue to offer funds to Ukraine. Thus, we expect further stabilization on capital flows with investments reviving gradually once the military conflict de-escalates.



We are holding to our expectation of a narrow C/A deficit this year at USD 4.1 bln, which is 2.9% of GDP.

Источник: Конкорд Капитал