1. Macroeconomic Review
March 2017

2. Summary
Real GDP increased 2.3% in Growth accelerated to 4.8% in the 4Q’2016, compared with the 4Q’2015;
Growth in most major branches decelerated sharply in Feb Industrial production, retail trade and agriculture contracted. One of the key deceleration factors is blockade of trade with certain areas of Donetsk and Luhansk oblasts;
12-m CPI growth accelerated to 14.2% in February, compared with 12.6% month ago. 12-m PPI accelerated to 38.9% from 36.8% month ago;
Unemployment rate in the 4Q’2016 increased to 9.7% from 8.8% in the 3Q’2016. Workforce supply/demand ratio declined to 7.7 in February, compared with 9.1 in January;
Real wages grew 21.4% in Jan 2017 to Jan Real incomes of households grew 7.3% in the 3Q’2016, compared with the 3Q’2015;
Current account (CA) was almost balanced in Jan 2017 (deficit USD 26 m). CA deficit in 2016 was USD 3.4 bn, or 3.6% of GDP;
Net FDI inflows were tiny in Jan 2017 (USD 17 m). Net FDI inflows were USD 3.4 bn in 2016 (most of them were conversions of Ukrainian banks external debt into equity);
Gross international reserves were USD 15.5 bn (3.3 m of import coverage) as of 1 Mar;
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 2017 was UAH 25 bn. Public and publicly guaranteed debt increased to UAH bn (USD 71 bn) as of 1 Feb;
Deficit of consolidated budget in 2016 was 2.3% of GDP. Public and publicly guaranteed debt increased to 81.0% of GDP as of 1 Jan;
In February monetary aggregates declined a bit. Annual growth of M0 and monetary base remained moderate: 8.4% and 10.0% respectively;
NBU kept discount rate at 14.0% in March. Next NBU meeting will be on April 13.

3. GDP Real GDP increased 2.3% in 2016;
Real GDP, percent change from quarter one year ago
Real GDP, percent change from preceding quarter
Real GDP increased 2.3% in 2016;
GDP increased 4.8% in the 4Q’2016, compared with the 4Q’2015. Growth accelerated from 2.3% in preceding quarter;
GDP increased 1.9% in the 4Q’2016, compared with the 3Q’2016. Growth accelerated from 1.4% in preceding quarter;
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 growth in Jan-Feb 2017 (compared with Jan-Feb 2016) decelerated to 0.4%, compared with 5.6% month ago;
Industrial production contracted 4.6% in Feb 2017 to Feb 2016, of which mining industries contracted 11.5%, manufacturing – 3.2%. Electricity, gas, steam and conditioning air supply kept growth 1.8%;
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 16.6% in Jan-Feb 2017, compared with Jan-Feb 2016 (from 23.7% in Jan 2017 to Jan 2016);
Growth of freight turnover was driven by growth in following subsectors: pipelines (23.7%), motor vehicles (14.6%) and railway trains (13.8%). Freight turnover of aircraft and water transport declined 5.8% and 6.5% respectively;
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 Feb 2017 to Feb 2016 decelerated to 4.8% , compared with 35.0% in Jan 2017 to Jan 2016;
Construction increased 21.0% in Jan-Feb 2017, compared with Jan-Feb 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-Feb 2017, compared with Jan-Feb 2016, slowed to 1.7%, from decline 2.4% in Jan 2017 to Jan 2016;
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 slowed to 0.5% in Jan-Feb 2017, compared with Jan-Feb 2016 (from 3.1% in Jan 2017 to Jan 2016). Retail trade turnover declined 1.7% in Feb 2017, compared with Feb 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
Growth of real incomes of households accelerated to 7.3% in the 3Q’2016 (compared with the 3Q’2015) from 5.6% in the 2Q’2016;
Real wages surged 21.4% in January 2017, compared with January 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 7.7 times more than demand in February, compared with 9.1 in January. The ratio declined due to increase of demand (from 47 to 57 th people). Ratio decline was limited by supply growth – from 429 to 439 th people.
The indicator peaked in December 2015 – 18.9 (the highest value in decade).

8. Inflation CPI increased 1.0% in February. Food prices grew 1.5%;
Inflation, yoy % change
CPI increased 1.0% in February. Food prices grew 1.5%;
12-m CPI growth accelerated to 14.2% as of February, compared with 12.6% as of January. 12-m CPI remains well below peak 60.9% in April 2015;
PPI rose 3.1% in February. Manufacturing prices increased 3.7%. Prices in mining industries and in Electricity, gas, steam and air-conditioning supply grew 2.3% and 1.8% respectively;
12-m PPI accelerated to 38.9%, compared with 36.8% as of January.

9. Current account and it’s components
Current account (CA) balance, 12-m sliding curve, USD bn
In Jan 2017 CA deficit shrank to USD 26 m, compared with deficit USD 315 m in Jan 2016;
Annual (Feb 2016 – Jan 2017) CA deficit was USD 3.1 bn;
CA deficit in 2016 widened to USD 3.4 bn, or 3.6% 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 Jan 2017 was USD 2.8 bn. It increased 52.7%, compared with Jan 2016;
Import of goods in Jan 2017 was USD 3.2 bn. It increased 31.6%, compared with Jan 2016;
Sharp export/import increase in Jan 2017 was due to technical statistical factors;
The largest trade partner of Ukraine in 2016 was EU. EU share in external goods turnover was 34.6%. Share of Russia was 11.1%.

10. Terms of trade index (prices)
In January index value increased 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 114.8), than import prices (index value 111.9).
Terms of trade index (physical volumes) In January index value increased from 77.6 to Index value above 100 means positive terms of trade. Positive changes were due to fast growth (compared with the same month of the previous year) of physical export volumes (index value 129.0). “Fast growth” of exports in January was due to weak “statistics base” – January-2016 exports was subdued due to Russian trade restrictions.

11. Foreign direct investments
Net FDI , USD m
Net FDI in January 2017 increased USD 17 m;
Net FDI in 2016 were USD 3.4 bn, of which 67% (or USD 2.2 bn) to banking sector. Most FDI to 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 grew to USD 15.5 bn as of 1 Mar 2017, compared with USD 15.4 bn as of 1 Feb 2017;
GIR are equal to 3.3 months of import coverage;
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 February increased to USD 4.1 bn, compared with USD 4.0 bn month ago.
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
Balance of consolidated budget, UAH bn
Balance of consolidated budget, % of GDP
Surplus of consolidated budget in Jan 2017 was UAH 25 bn. It was due to increase of budget revenues to UAH 73 bn, or 90%, compared with Jan Budget expenditures increased 61%, to UAH 47 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 Jan 2017 public and publicly guaranteed debt increased UAH 1 bn, to UAH bn. In dollar terms, debt grew USD 0.2 bn, to USD 71.2 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
Although at the end of March hryvnia is under pressure (due to delay of IMF decision on Ukraine), it remains broadly stable. Average USD/UAH from 1 to 27 of March was 26.98, compared with Feb 2017 average (hryvnia appreciated 0.2% to US dollar);
UAH depreciation to USD from Mar 2016 to Mar 2017 (average monthly rates as of Mar 27) was 2.3%;
Average USD/UAH in 2016 was 25.55, compared with 2015-average (UAH depreciation to USD was 14.5%).
NBU discount rate
On Mar 2 NBU kept discount rate unchanged again %. NBU stopped easing cycle due to increased inflation risks. Last change of discount rate (cut from 15.0% to 14.0%) was in October 2016;
Interest rate on overnight liquidity providing transactions kept 16.0% (discount rate + 2%);
Interest rate on overnight certificates of deposit kept 12.0% (discount rate – 2%);
Next NBU meeting on interest rates will be on Apr

16. Monetary policy: money supply
Cash (M0), percent change from month one year ago
Monetary base, percent change from month one year ago
In February monetary aggregates declined a bit:
Monetary base declined UAH 0.5 bn, or 0.1%, to UAH bn;
M0 declined UAH 2.9 bn, or 1.0%, to UAH bn.
Annual growth of monetary aggregates remained moderate:
Monetary base increased UAH 33.0 bn, or 10.0%;
M0 increased 22.6 bn, or 8.4%.

17. Insolvent Banks (as of 27 Mar 2017)
Number of banks classified insolvent
One bank (Vector bank) has been recognized insolvent in March (as of 27 Mar);
91 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;
3 banks (Rodovid, Unison and Finansova Iniciatyva) are managed by provisional administrations;
83 banks are under liquidation procedures.
92 banks continue to work in normal mode (as of Mar 27);
After Privatbank recapitalization, market share of government controlled banks increased to 51.3% (as of 1 Jan 2017), share of subsidiaries of foreign banking groups was 34.9%. Market share of other banks declined to 13.8%.

18. Households deposits, bn
In February hryvnia deposits increased 1.3%, to UAH bn. Annual (Mar 2016 – Feb 2017) growth was 8.9%;
In February FX deposits declined 1.2%, to USD 8.3 bn. Annual (Mar 2016 – Feb 2017) decline was 4.7%.
Corporate deposits, bn
In February hryvnia deposit portfolio declined 1.1%, to UAH bn. Annual (Mar 2016 – Feb 2017) growth of deposit portfolio was 7.1%;
In February FX deposits increased 0.4%, to USD 4.7 bn. Annual (Mar 2016 – Feb 2017) growth of deposit portfolio was 2.0%.

19. Credits Households credits, bn
FX credit portfolio in February declined 2.4%, to USD 3.0 bn. Annual (Mar 2016 – Feb 2017) decline was 19.8%;
Volume of FX credits declined 89%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio in February grew 0.8%, to UAH 76.4 bn. Annual (Mar 2016 – Feb 2017) decline of UAH credit portfolio slowed to 1.6%.
Corporate credits, bn
In February FX credit portfolio declined USD 1.9%, to USD 14.4 bn. Annual (Mar 2016 – Feb 2017) decline was 23.2%;
In February UAH credit portfolio increased 0.1%, to UAH bn. Annual (Mar 2016 – Feb 2017) increase of credit portfolio was 19.9%..