Ukraine C/A deficit shrinks 5x yoy in July

Ukraine’s current account deficit shrunk 5x in July to USD 330 mln, compared to USD 1.7 bln a year ago. Fast contraction of commodity imports (-31.1% yoy to USD 5.2 bln), a 44.3% yoy plunge in oil & gas imports, as well as a 27.1% yoy decline in non-energy imports were the main reasons for the outcome. At the same time, exports of goods decreased only 7.4% yoy to USD 5.0 bln, with food exports growth (+26.2% yoy) offsetting declines in machinery (-31.5% yoy), chemical (-34.5% yoy) and mineral (-22.0% yoy) exports.



Financial and capital accounts reached a minor surplus in July (USD 67 mln) compared to a USD 311 mln deficit in the prior month. FDI inflow was USD 169 mln in July, while foreign cash flowed out of the banking system (USD -85 mln).



The general balance was negative through the month (USD 263 mln). Coupled with a USD 648 mln IMF loan redemption, gross foreign reserves fell by USD 911 mln to USD 16.1 bln (2.4 months of future imports) by the end of July.



Alexander Paraschiy: The current account keeps improving in line with our expectations. The energy bill halved after Russia halted its natural gas supply in mid-June, while non-energy imports continued their double-digit declines on the back of a devaluation effect. Surprisingly, but exports declined very modestly against the backdrop of a 12.1% yoy industrial output slump in July. In fact, these external accounts numbers have proven true National Bank (NBU) statements that the hryvnia decline at the end of July did not have any fundamental reasons behind it.



Despite the inspiring July figures, the August statistics are likely to deliver a very unpleasant picture given that metal-producing plants have been stopped near Donetsk due to the escalated war (a very minor metal exports decline of 1.9% yoy was reported in July). To make matters worse, we expect August capital accounts to report substantial foreign cash outflow from the banking system owing to panic-driven individual demand, particularly deposit outflows. Given that the second IMF tranche was delayed in August, the general balance will be significantly negative as well.



Nevertheless, the mid-term prospects for external accounts remain positive, especially in light of a new devaluation wave in August. Thus far, we are keeping our 2014 C/A deficit projection at USD 4.1 bln, which is near 3.5% of GDP under the current hryvnia exchange rate.

Источник: Конкорд Капитал