1. Macroeconomic Review
May 2017

2. Summary
Real GDP increased 2.4% in the 1Q’2017, compared with the 1Q’2016. Growth slowed from 4.8% in the 4Q’2016;
Trends in major branches of economy in April were contradictory. Construction , transport and retail trade grew. Decline in agriculture diminished. Industrial production decline deepened to 6.1% (in Apr 2017 to Apr 2016);
12-m CPI growth decelerated to 12.2% in April, compared with 15.1% month ago. 12-m PPI slowed to 35.6% from 38.3% month ago;
Unemployment rate in the 4Q’2016 increased to 9.7% from 8.8% in the 3Q’2016. Workforce supply/demand ratio grew to 5.8 in April, compared with 5.5 in March;
Real wages grew 18.7% in Mar 2017 to Mar Real incomes of households declined 1.0% in the 4Q’2016, compared with the 4Q’2015. Real incomes grew 0.3% in 2016;
Current account (CA) deficit in the 1Q’2017 was USD 1.2 bn (5.7% of GDP). Annual (Apr 2016 – Mar 2017) CA deficit was USD 3.5 bn (3.7% of GDP);
Net FDI inflows in 1Q’2017 were USD 147 m. Net FDI inflows were USD 3.3 bn in 2016;
In April gross international reserves (GIR) increased USD 2.1 bn, to USD 17.2 bn (3.6 m of import coverage) as of May 1;
External debt declined to USD 113 bn at the end of the 4Q’2016, compared with USD 116 bn at the end of the 3Q’2016. External debt declined USD 29 bn from peak USD 142 bn at the end of 2013;
Surplus of consolidated budget in Jan-Mar 2017 was UAH 4 bn. Deficit of consolidated budget in 2016 was 2.3% of GDP;
Public and publicly guaranteed debt increased to UAH bn (USD 72 bn) as of Apr 1. It was UAH bn (USD 71 bn), or 81.0% of GDP, as of Jan 1;
In April M0 and monetary base increased 3.0% and 3.2% respectively. Annual growth of M0 and monetary base remained moderate: 7.3% and 9.7% respectively;
NBU cut discount rate from 13.0% to 12.5% on May 25. Next NBU meeting will be on Jul 6.

3. GDP
Real GDP, percent change from quarter one year ago
Real GDP, percent change from preceding quarter
GDP increased 2.4% in the 1Q’2017, compared with the 1Q’2016. Growth decelerated from 4.8% in the preceding quarter;
GDP declined 0.3% in the 1Q’2017, compared with the 4Q’2016;
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 declined 2.0% in Jan-Apr 2017, compared with Jan-Apr 2016;
Industrial production contracted 6.1% in April 2017 to April 2016, of which Mining industries – 12.3, Electricity, gas, steam and conditioning air supply – 8.5%, manufacturing - 2.8%;
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 11.1% in Jan-Apr 2017, compared with Jan-Apr 2016;
Growth of freight turnover was driven by following subsectors: water transport (24.5%), pipelines (16.8%), motor vehicles (10.2%) and railway trains (8.3%). Freight turnover of aircraft declined marginal 0.4%;
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 Apr 2017 compared with Apr 2016 decelerated to 7.4%, from 11.5% in Mar 2017 to Mar 2016;
Construction increased 17.8% in Jan-Apr 2017, compared with Jan-Apr 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 decline in Jan-Apr 2017, compared with Jan-Apr 2016, diminished to 0.3%;
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 growth accelerated to 5.8% in Jan-Apr 2017, compared with Jan-Apr 2016 (from 3.1% in 1Q’2017 to 1Q’2016). Retail trade turnover grew 6.1% in Apr 2017, compared with Apr 2016;
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 declined 1.0% in the 4Q’2016 (compared with the 4Q’2015), after 9.0% growth in the 3Q’2016;
Real incomes of households grew 0.3% in 2016, after 22.3% drop in 2015;
Real wages increased 18.7% in Mar 2017, compared with Mar 2016;
Real wages increased 19.7% in Jan-Feb 2017, compared with Jan-Feb 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 4Q’2016:
Unemployment rate was 9.7%;
Civilian labor force was 17.8 m persons, of which unemployed persons – 1.7 m;
Participation rate was 61.7%;
Employment-population ratio was 55.7%.
Workforce supply was 5.8 times more than demand in April, compared with 5.5 in March. The ratio grew due to decline of demand (from 74 to 64 th people). Ratio growth was softened due to decline of supply of labor force (from 407 to 374 th people).
The indicator peaked in December 2015 – 18.9 (the highest value in decade).

8. Inflation CPI increased 0.9% in April. Food prices grew 1.2%;
Inflation, yoy % change
CPI increased 0.9% in April. Food prices grew 1.2%;
12-m CPI growth decelerated to 12.2% as of April, compared with 15.1% as of March. 12-m CPI remains well below peak 60.9% in April 2015;
PPI rose 1.6% in April. Electricity, gas, steam and air-conditioning supply prices increased 4.0%. Prices in mining industries and manufacturing grew 2.1% and 0.6% respectively;
12-m PPI decelerated to 35.6% as of April, compared with 38.3% as of March.

9. Current account and it’s components
Current account (CA) balance, 12-m sliding curve, USD bn
In Mar 2017 CA deficit was USD 783 m, compared with USD 640 m in Mar 2016;
In 1Q’2017 CA deficit was USD 1.2 bn (5.7% of GDP), compared with USD 1.5 bn (8.4% of GDP) in 1Q’2016;
Annual (Apr 2016 – Mar 2017) CA deficit was USD 3.5 bn (3.7% 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 Mar 2017 was USD 3.8 bn. It increased 36.6%, compared with Mar 2016;
Import of goods in Mar 2017 was USD 4.4 bn. It increased 31.8%, compared with Mar 2016;
The largest trade partner of Ukraine in 1Q’2017 was EU. EU share in external goods turnover was 35.5%. Share of Russia was 10.9%.

10. Terms of trade index (prices)
In March index value declined from 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 124.9), than import prices (index value 117.1).
Terms of trade index (physical volumes) In March index value declined from 95.3 to Index value below 100 means negative terms of trade. Negative changes were due to faster growth (compared with the same month of the previous year) of physical import volumes (index value 115.6), than physical export volumes (index value 109.8)

11. Foreign direct investments
Net FDI , USD m
Net FDI in Mar 2017 increased USD 63 m;
Net FDI in 1Q’2017 increased USD 147 m. All of them were to the real sector of economy;
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 increased to USD 17.2 bn (3.6 months of import coverage) as of 1 May 2017, compared with USD 15.1 bn as of 1 Apr 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 April increased to USD 4.6 bn, compared with USD 3.7 bn month ago.
GIR increased due to 1) receiving financial support from IMF (bn 1.0 USD) 2) receiving financial support from EU (EUR 0.6 bn); 3) NBU interventions on interbank market (USD 0.4 bn).
External Debt, eop USD bn
External debt declined:
USD 2.5 bn, to USD bn, in the Q4’2016;
USD 5.2 bn in 2016;
USD 28.6 bn, compared with the historical maximum level (USD bn as of 1 Jan 2014).

13. Budget Deficit of consolidated budget in Mar 2017 was UAH 14 bn;
Balance of consolidated budget, UAH bn
Balance of consolidated budget, % of GDP
Deficit of consolidated budget in Mar 2017 was UAH 14 bn;
Surplus of consolidated budget in Jan-Mar 2017 narrowed to UAH 4 bn;
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 Mar 2017 public and publicly guaranteed debt increased UAH 10 bn, to UAH bn. In dollar terms, debt grew USD 0.6 bn, to USD 72.4 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 May hryvnia was broadly stable. Average USD/UAH from 1 to 25 of May was 26.43, compared with Apr 2017 average (hryvnia appreciated 1.6% to US dollar);
UAH depreciation to USD from May 2016 to May 2017 (average monthly rates as of May 25) was 4.6%;
Average USD/UAH in 2016 was 25.55, compared with 2015-average (UAH depreciation to USD was 14.5%).
NBU discount rate
On May 25 NBU cut discount rate from 13.0% to 12.5%;
Interest rate on overnight liquidity providing transactions was cut from 15.0% to 14.5% (discount rate + 2%);
Interest rate on overnight certificates of deposit was cut from 11.0% to 10.5% (discount rate – 2%);
Next NBU meeting on interest rates will be on Jul

16. Monetary policy: money supply
Cash (M0), percent change from month one year ago
Monetary base, percent change from month one year ago
Money supply changes in April:
Monetary base increased UAH 11.4 bn, or 3.2%, to UAH bn;
M0 increased UAH 8.6 bn, or 3.0%, to UAH bn.
Annual growth of monetary aggregates remained moderate:
Monetary base increased UAH 32.5 bn, or 9.7%;
M0 increased 20.3 bn, or 7.3%.

17. Insolvent Banks (as of 25 May 2017)
Number of banks classified insolvent
No one bank has been recognized insolvent in May (as of May 25);
93 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;
4 banks (Rodovid, Unison, Finansova Iniciatyva and Diamantbank) are managed by provisional administrations;
87 banks are under liquidation procedures.
90 banks continue to operate in normal mode (as of May 25;
After Privatbank recapitalization, market share of government controlled banks increased to 54.2% (as of 1 Apr 2017), share of subsidiaries of foreign banking groups was 31.5%. Market share of other banks (private and insolvent) declined to 14.2%.

18. Households deposits, bn
In April hryvnia deposits increased 4.1%, to UAH bn. Annual (May 2016 – Apr 2017) growth was 12.1%;
In April FX deposits increased 0.3%, to USD 8.3 bn. Annual (May 2016 – Apr 2017) decline was 4.5%.
Corporate deposits, bn
In April hryvnia deposit portfolio was stable near UAH bn. Annual (May 2016 – Apr 2017) growth of deposit portfolio was 13.6%;
In April FX deposits increased 1.7%, to USD 4.9 bn. Annual (May 2016 – Apr 2017) decline of deposit portfolio was 3.9%.

19. Credits Households credits, bn
FX credit portfolio in April declined 0.7%, to USD 2.9 bn. Annual (May 2016 – Apr 2017) decline was 18.3%;
Volume of FX credits declined 89%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio in April was stable near UAH 78.1 bn. Annual (May 2016 – Apr 2017) growth of UAH credit portfolio was 2.6%.
Corporate credits, bn
In April FX credit portfolio was stable near USD 14.1 bn. Annual (May 2016 – Apr 2017) decline was 24.7%;
In April UAH credit portfolio increased 0.4%, to UAH bn. Annual (May 2017 – Apr 2017) increase of credit portfolio was 22.7%.