1. Macroeconomic Review
August 2017

2. Summary
Real GDP increased 2.4% in the 2Q’2017, compared with the 2Q’2016;
Construction, transport and retail trade continued to grow. Industrial production and agriculture contracted;
12-m CPI accelerated to 15.9% in July, compared with 15.6% month ago. 12-m PPI slowed to 23.3% from 26.3% month ago;
Unemployment rate in the 1Q’2017 increased to 10.1% from 9.7% in the 4Q’2016. Workforce supply/demand ratio declined to 4.9 in July (the lowest value since Sep 2013), compared with 5.0 in June;
Real wages grew 17.2% in July 2017 to July Real incomes of households grew 2.4% in the 1Q’2017, compared with the 1Q’2016. Real incomes grew 0.3% in 2016;
Current account (CA) deficit in 1H’2017 was USD 1.6 bn (3.4% of GDP). Annual (Jul 2016 – Jun 2017) CA deficit was USD 4.4 bn (4.7% of GDP);
Net FDI inflows in 1H’2017 were USD 1.2 bn. Net FDI inflows were USD 3.3 bn in 2016;
In July gross international reserves (GIR) of NBU declined USD 0.2 bn, to USD 17.8 bn (3.7 m of import coverage) as of Aug 1;
In the 1Q’2017 external debt was broadly unchanged about USD 114 bn. External debt declined USD 28 bn from peak USD 142 bn at the end of 2013;
Surplus of consolidated budget in June 2017 was UAH 2 bn. It widened to UAH 52 bn as of 1H’2017. Deficit of consolidated budget in 2016 was 2.3% of GDP;
Public and publicly guaranteed debt declined UAH 10 bn, to UAH bn in June (in dollar terms, debt grew USD 0.3 bn, to USD 75.0 bn). It was UAH bn (USD 71 bn), or 81.0% of GDP, as of Jan 1;
In July M0 rose 1.3%, monetary base declined 0.6%. Annual growth of M0 and monetary base was moderate: 6.4% and 7.0% respectively;
On Aug 3 NBU kept discount rate unchanged %. Next NBU meeting will be on Sep 14.

3. GDP
Real GDP, percent change from quarter one year ago
Real GDP, percent change from preceding quarter
GDP increased 2.4% in the 2Q’2017, compared with the 2Q’2016. Growth decelerated from 4.8% in the 4Q’2016;
GDP grew 0.6% in the 2Q’2017, compared with the 1Q’2017, after decline 0.3% in the previous quarter;
Real GDP increased 2.3% in 2016;
GDP decline in 2015 was 9.8%. It was 6.6% in 2014.

4. Industrial production and transport
Industrial production, cumulative percent change from the same period one year ago
Industrial production contracted 0.7% in Jan-Jul 2017, compared with Jan-Jul 2016;
Industrial production declined 2.6% in July 2017 to July 2016, of which Electricity, gas, steam and conditioning air supply – 11.9%, mining industries – 9.4%. Manufacturing grew 2.5%;
Industrial production growth in 2016 was 2.8%.
Freight turnover, cumulative percent change from the same period one year ago
Freight turnover growth slowed to 8.7% in Jan-Jul 2017, compared with Jan-Jul Growth was 9.1% in 1H’2017;
Growth was in all transport subsectors, namely: water transport %, pipelines %, motor vehicles - 8.8%, railway trains - 4.9%, aircraft - 2.1%;
Freight turnover growth in 2016 was 2.6%.

5. Construction and agriculture
Construction, cumulative percent change from the same period one year ago
Construction growth in July 2017, compared with July 2016, was 17.3%;
Construction rose 24.2% in Jan-Jul 2017, compared with Jan-Jul 2016;
Construction growth in 2016 was 17.4%;
Construction contraction in 2015 was 12.3%.
Agriculture, cumulative percent change from the same period one year ago
Agriculture contraction in Jan-Jul 2017, compared with Jan-Jul 2016, was 2.0%, of which crop production declined 3.1%, animal production - 0.7%;
Agriculture grew 6.1% in 2016, of which crop production grew 9.7%, animal production declined 2.6%;
Agriculture contraction in 2015 was 4.8%.

6. Retail trade and households incomes
Retail trade turnover, cumulative percent change from the same period one year ago
Retail trade turnover grew 8.0% in Jan-Jul 2017, compared with Jan-Jul Retail trade turnover growth in Jul 2017, compared with Jul 2016, was 6.8%;
Retail trade growth was 4.0% in 2016;
Retail trade decline was 20.7% in 2015.
Households real income, percent change from quarter one year ago
Real incomes of households grew 2.4% in the 1Q’2017 (compared with the 1Q’2016), after 1.0% decline in the 4Q’2016;
Real incomes of households grew 0.3% in 2016, after 22.3% drop in 2015;
Real wages increased 17.2% in July 2017, compared with July 2016;
Real wages increased 19.8% in Jan-May 2017, compared with Jan-May 2016;
Real wages grew 9.0% in 2016, after 20.2 drop in 2015.

7. Unemployment rate, % ILO methodology Workforce supply to demand ratio
Labor market
Unemployment rate, % ILO methodology Workforce supply to demand ratio
Key labor market indicators as of the 1Q’2017:
Unemployment rate was 10.1%;
Civilian labor force was 17.7 m persons, of which unemployed persons – 1.8 m;
Participation rate was 61.4%;
Employment-population ratio was 55.2%.
Workforce supply was 4.9 times more than demand in July (the lowest value since September 2013), compared with 5.0 in June. The ratio fell due to faster decline of supply (from to th people), than demand (from 66.5 to 65.3 th people).
The indicator peaked in December 2015 – 18.9 (the highest value in decade).

8. Inflation CPI increased 0.2% in July. Food prices grew 0.3%;
Inflation, yoy % change
CPI increased 0.2% in July. Food prices grew 0.3%;
12-m CPI growth accelerated to 15.9% as of July, compared with 15.6% as of June. 12-m CPI remains well below peak 60.9% in April 2015;
PPI increased 1.8% in July. Prices in Electricity, gas, steam and air-conditioning supply and in Manufacturing increased 7.0% and 0.2% respectively. Mining industries prices declined 0.2%;
12-m PPI decelerated to 23.3% as of July, compared with 26.3% as of June.

9. Current account and it’s components
Current account (CA) balance, 12-m sliding curve, USD bn
In June 2017 CA deficit was USD 518 m, compared with surplus USD 88 m in June 2016;
In 1H’2017 CA deficit was USD 1.6 bn (3.4% of GDP);
Annual (Jul 2016 – Jun 2017) CA deficit was USD 4.4 bn (4.7% of GDP);
CA deficit in 2016 widened to USD 3.8 bn (4.1% of GDP), compared with USD 0.2 bn (0.2% of GDP) in 2015.
Trade in goods, 12-m sliding curve, USD bn
Export of goods in June 2017 was USD 3.1 bn. It increased 13.6%, compared with June 2016;
Import of goods in June 2017 was USD 3.9 bn. It increased 30.1%, compared with June 2016;
The largest trade partner of Ukraine in 1H’2017 was EU. EU share in external goods turnover was 36.5%. Share of Russia was 11.2%.

10. Terms of trade index (prices)
In June index value grew from 98.3 to Value above 100 reflects positive terms of trade. Positive index value was due to more significant rise (compared with the same month of the previous year) of export prices (index value 110.3), than import prices (index value 109.8).
Terms of trade index (physical volumes) In June index value was broadly unchanged (increased from 84.8 to 85.2). Index value below 100 means negative terms of trade. Negative index value was due to significant growth (compared with the same month of the previous year) of physical import volumes (index value 123.8). Growth of physical export volumes was much more moderate (index value 105.4).

11. Foreign direct investments
Net FDI , USD m
Net FDI in June 2017 increased USD 630 m, of which USD 401 m – to banking sector;
Net FDI in 1H’2017 increased USD m;
Net FDI in 2016 were USD 3.3 bn, of which 67% (or USD 2.2 bn) to the banking sector. Most FDI to the banking sector were result of conversions of Ukrainian banks debt to their foreign parents banks into equity;
Net FDI inflows in 2015 were USD 3.0 bn, compared with USD 0.3 bn in 2014 (10-times increase).

12. Reserves and external debt
Gross International Reserves, months of import coverage
Gross international reserves (GIR) of NBU declined to USD 17.8 bn (3.7 months of import coverage) as of 1 Aug 2017, compared with USD 18.0 bn as of 1 Jul 2017;
GIR are well above the lowest point – USD 5.6 bn, or 1 month of import coverage, - reached at the end of February 2015;
Net international reserves (NIR) of NBU in July declined to USD 4.9 bn, compared with USD 5.2 bn month ago;
GIR decline was caused mainly by repayments on state debt (USD 0.6 bn).
External Debt, eop USD bn
In the 1Q’2017 external debt grew USD 0.1 bn, to USD bn,;
External debt declined USD 3.7 bn during last year (2Q’2016 – 1Q’2017);
External debt declined USD 28.4 bn, compared with the historical maximum level (USD bn as of 1 Jan 2014).

13. Budget Surplus of consolidated budget in June 2017 was UAH 2 bn;
Balance of consolidated budget, UAH bn
Balance of consolidated budget, % of GDP
Surplus of consolidated budget in June 2017 was UAH 2 bn;
Surplus of consolidated budget in 1H’2017 widened to UAH 52 bn (UAH 30 bn of which due to confiscation of Yanukovych’s funds in April);
In 2016 deficit of consolidated budget widened to UAH 55 bn, compared with UAH 31 bn year ago, or to 2.3% of GDP from 1.6% of GDP. It was generated by state budget (deficit UAH 70 bn) and offset partly by surpluses of local budgets.

14. Public and publicly guaranteed debt
Nominal values, bn
% of GDP
In June 2017 public and publicly guaranteed debt declined UAH 10 bn, to UAH bn. In dollar terms, debt grew USD 0.3 bn, to USD 75.0 bn.
In 2016 public and publicly guaranteed debt increased UAH 408 bn (from UAH bn to UAH bn). At the same time, debt increased USD 5.5 bn (from USD 65.5 bn to USD 71.0 bn).
Public and publicly guaranteed debt increased from 79.1% to 81.0% of GDP during 2016.

15. Monetary policy: rate of exchange and interest rates
USD/UAH official exchange rate
In August hryvnia continued to appreciate modestly. Average USD/UAH from 1 to 29 of August was 25.67, compared with July 2017 average (hryvnia appreciated 1.2% to US dollar);
UAH depreciation to USD from August 2016 to August 2017 (average monthly rates as of August 29) was 2.4%;
Average USD/UAH in 2016 was 25.55, compared with 2015-average (UAH depreciation to USD was 14.5%).
NBU discount rate
On Aug 3 NBU kept discount rate unchanged %;
Interest rate on overnight liquidity providing transactions remained 14.5% (discount rate + 2%);
Interest rate on overnight certificates of deposit remained 10.5% (discount rate – 2%);
Next NBU meeting on interest rates will be on Sep

16. Monetary policy: money supply
Cash (M0), percent change from month one year ago
Monetary base, percent change from month one year ago
Changes of money supply in July:
Monetary base decreased UAH 2.2 bn, or 0.6%, to UAH bn;
M0 increased UAH 3.9 bn, or 1.3%, to UAH bn.
Annual growth of monetary aggregates was moderate:
Monetary base increased UAH 24.9 bn, or 7.0%;
M0 increased 18.8 bn, or 6.4%.

17. Insolvent Banks (as of 28 Aug 2017)
Number of banks classified insolvent
One bank (Gefest) has been recognized insolvent in August (as of Aug 28);
95 banks have been recognized insolvent by the NBU Resolutions or decided to leave the market since , of which:
1 bank (Privatbank) has been sold to government;
1 bank (Astra) has been sold to private investors;
5 banks (Rodovid, Unison, Finansova Iniciatyva, Novyi and Gefest) are managed by provisional administrations;
88 banks are under liquidation procedures.
88 banks continue to operate in normal mode (as of Aug 28);
After Privatbank recapitalization, market share of government controlled banks increased to 54.8% (as of 1 Jul 2017), share of subsidiaries of foreign banking groups was 31.2%. Market share of other banks declined to 14.0%.

18. Households deposits, bn
In July hryvnia deposits decreased 1.0%, to UAH bn. Annual (Aug 2016 – Jul 2017) growth was 11.3%;
In July FX deposits portfolio was stable about USD 8.4 bn. Annual (Aug 2016 – Jul 2017) decline was 3.9%.
Corporate deposits, bn
In July hryvnia deposits portfolio rose 2.0%, to UAH bn. Annual (Aug 2016 – Jul 2017) growth of deposit portfolio was 10.1%;
In July FX deposits grew 5.7%, to USD 5.2 bn. Annual (Aug 2016 – Jul 2017) growth of deposit portfolio was 1.2%.

19. Credits Households credits, bn
FX credit portfolio in July declined 1.4%, to USD 2.8 bn. Annual (Aug 2016 – Jul 2017) decline was 17.1%;
Volume of FX credits declined 90%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio in July increased 1.6%, to UAH 83.1 bn. Annual (Aug 2016 – Jul 2017) growth of UAH credit portfolio was 12.9%.
Corporate credits, bn
In July FX credit portfolio declined 1.6%, to USD 13.7 bn. Annual (Aug 2016 – Jul 2017) decline was 23.9%;
In July UAH credit portfolio rose 1.8%, to UAH bn. Annual (Aug 2016 – Jul 2017) increase of credit portfolio was 24.8%.