1. Macroeconomic Review May 2016

2. Summary GDP grew 0.1% in 1Q’2016 to 1Q’2015;
Industrial production, construction, transport and retail trade supported GDP growth in Jan-Apr. Agriculture contracted 1.7%;
12-m CPI growth slowed to 9.8% (compared with peak 60.9% year ago), PPI - to 10.1% (last year peak 51.7%).
Unemployment rate in 4Q’2015 was 9.5%. Workforce supply/demand ratio grew to 11.0 in April, compared with 9.4 in March;
Annual (April 2015 – March 2016) deficit of current account (CA) widened to USD 689 m, or 0.8% of GDP. CA deficit in 1Q’2016 was 5.3% of GDP;
Net FDI inflows were USD 1.3 bn in 1Q’2016. Most of them are conversion of Ukrainian banks external debt into equity;
Gross international reserves were USD 13.2 bn (3.4 m of import coverage) as of 1 May;
External debt declined to USD 119 bn at the end of 2015, compared with peak USD 142 bn at the end of 2013;
Surplus of consolidated budget declined to UAH 4 bn in 1Q, compared with UAH 10 bn in Jan-Feb. Public and publicly guaranteed debt was UAH bn (USD 67 bn) as of 1 May;
Money supply (M0 and monetary base growth) in April was larger than during last 12 months (May 2015 – Apr 2016);
NBU cut discount rate from 19% to 18% in May. Next NBU meeting will be on Jun 23.

3. GDP resumes growth
GDP, % change compared with the same quarter of the previous year GDP, % change compared with the previous quarter
GDP grew 0.1% in 1Q’2016, compared with 1Q’2015. Industrial production, construction, transport, retail trade were among growing industries. It was decline in agriculture;
GDP declined 0.7% in 1Q’2016, compared with 4Q’2015. Decline was after two straight growing quarters in 2H’2015;
IMF, World Bank and EBRD expect GDP growth in 2016 will be 1-2%;
GDP decline in 2015 was 9.9%. It was 6.6% in 2014.

4. Industrial production and transport
Industrial production, cumulative % change compared with the same period of the previous year
Industrial production growth in Jan-Apr 2016 to Jan-Apr 2015 was 3.7% (growth value remained on the 1Q level);
Industrial production growth slowed to 3.5% in April 2016, compared with April It is the third consecutive slowing month (after 4.8% in March and 7.6% in February);
In April slowing growth was caused by contraction in Electricity, gas, steam and conditioning air supply (-5.0%). Growth in manufacturing was 5.8%, in mining industries – 3.0%,
Freight turnover, cumulative % change compared with the same period of the previous year
Freight turnover growth in Jan-Apr 2016 to Jan-Apr slowed to 3.3%, compared with 4.2% in the 1Q’2016;
Growth of freight turnover was ensured mostly by pipelines (+31.4%). Freight turnover of railway trains and water transport continued to decline – 5.5% and 33.8% respectively.

5. Construction and agriculture
Construction, cumulative % change compared with the same period of the previous year
In Jan-Apr 2016 to Jan-Apr 2015 construction grew 8.5%;
Growth in April 2016 to April 2015 was 17.2%;
In April all construction subsectors, including residential and non-residential buildings construction, resumed growth. In previous month growth was ensured by civil engineering’s subsector only.
Agriculture, cumulative % change compared with the same period of the previous year
In Jan-Apr 2016 contraction in agriculture was 1.7%, compared with the same period of the previous year;
Agriculture contraction in 2015 was 4.8%.

6. Retail trade and households incomes
Retail trade turnover, cumulative % change compared with the same period of the previous year
Retail trade turnover grew 2.5% in Jan-Apr 2016, compared with the same period of the previous year;
Retail trade decline was 20.7% in 2015;
Moderate inflation and enhancing macroeconomic stability will support positive retail trade dynamics in coming months.
Households real income, % change compared with the same quarter of the previous year
Decline of real income of households diminished to -16.0% in the 4Q’2015, compared with the 4Q’2014. The sharpest fall was -30.4% in the 2Q’2015;
Real wages declined 6.8% in 1Q’2016, compared with 1Q’2015. Real wages grew 1.6% in March 2016, compared with March 2015;
Moderating inflation will support positive dynamics of real incomes and wages in coming months.

7. Unemployment rate, % ILO methodology
Labor market
Key labor market indicators as of 4Q’2015:
Unemployment rate was 9.5%;
Civilian labor force was 17.9 m persons, of which unemployed persons – 1.7 m;
Participation rate was 61.8%;
Employment-population ratio was 55.9%.
Workforce supply was 11.0 times more than demand in April 2016, compared with in March. Ratio increase was due to sharp fall of demand (from 50 th persons in March to 40 th persons in April).
The indicator peaked in December 2015 – (the highest value in decade).
Unemployment rate, % ILO methodology

8. Inflation
CPI increased 3.5% in April, led by town gas and natural gas (48.4%). Food prices were unchanged;
12-m CPI growth slowed to 9.8% as of April, compared with 20.9% as of March, and with peak 60.9% as of April 2015;
PPI increased 3.6% in April, led by mining of metal ores (27.4%) and metallurgy (7.6%);
12-m PPI increased 10.1% as of April, compared with peak 51.7% as of March 2015.
Inflation, yoy % change

9. Current account and it’s components
Current account (CA) balance, 12-m sliding curve, USD bn
CA deficit in 2015 was USD 0.2 bn (0.2% of GDP);
Annual (Apr 2015 – Mar 2016) CA deficit widened to USD m, or 0.8% of GDP;
CA deficit in 1Q’2016 reached USD 942 m, or 5.3% of GDP, of which USD 448 m in March;
CA deficit widening in March was caused by sharp increase of primary incomes deficit (to USD -425 m, compared with surplus USD 38 m in February). It was due to interest payouts on external debt.
Trade in goods, % change compared with the same month of the previous year
In March 2016 to March 2015 exports declined 16% (to USD bn), imports – 6% (to USD 3.2 bn). Decline of import volumes was due to fall of energy imports (-56%). At the same time non-energy imports grew 15%;
The largest share of exports in 1Q’2016 was to EU %, share of exports to Russia was 7.5%;
The largest share of imports in 1Q’2016 was from EU %, share of imports from Russia was 11.2%;
Exports of goods in 2015, compared with 2014, declined 30% (to USD 35.4 bn), imports – 33% (to USD 38.7 bn).

10. Terms of trade index (prices)
In March index grew from 90.0 to 94.2, but remains well below for about 2 years (since May 2014). Index value below reflects negative terms of trade. Low index value was due to faster decline of export prices (index value 87.6) than import prices (93.0).
Terms of trade index (physical volumes) In March index fell below 100 (from to 93.8). Index value below 100 means negative terms of trade. Low index in March was due to fall of physical export volumes (index value 98.2) and simultaneous growth of physical import volumes (index value 104.7).

11. Foreign direct investments
Net FDI , USD m
Net FDI inflows in 2015 were USD 3.0 bn, compared with USD 0.3 bn in 2014 (10-times increase);
USD 2.3 bn (or 77% of all FDI increase) were to banking system. Most of them was support from parent foreign banks to their Ukrainian subsidiaries, including conversion of debt into equity;
Net FDI in 1Q’2016 were USD 1.3 bn. Most of them (USD 0.8 bn) were generated in February by conversion of Prominvestbank debt to stakeholder (VEB) into equity.

12. Reserves and external debt
International Reserves, months of import coverage
Gross international reserves (GIR) of NBU rose to USD 13.2 bn as of 1 May 2016, compared with USD 12.7 bn as of 1 April 2016;
GIR increase was ensured by NBU interventions – NBU net purchases of currency were USD 676 m in April;
GIR are equal to 3.4 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.
External Debt, USD bn
External debt declined to USD bn as of the end of the 4Q’2015, compared with USD bn at the end of the 3Q’2015;
External debt declined significantly, compared with the end of (USD bn) and historical maximum level (USD bn).

13. Budget
Balance of consolidated budget, UAH bn
Balance of consolidated budget, % of GDP
Deficit of consolidated budget declined from UAH 72 bn to UAH 31 bn in 2015, or from 4.5% to 1.6% of GDP;
In 1Q’2016 surplus was UAH 3.9 bn, compared with surplus UAH 14.0 bn year ago;
Deficit in March was USD 6 bn.

14. Public and publicly guaranteed debt
Nominal values, bn
% of GDP
Public and publicly guaranteed debt increased from 69.4% to 79.4% of GDP during Increase in 2015 (+10.0% of GDP) was much less than in 2014 (+29.5% of GDP). Large part of Debt/GDP ratio growth was due to GDP contraction (-9.9% in 2015).
In Jan-Apr 2016 public and publicly guaranteed debt grew from UAH bn to UAH bn. At the same time, debt grew from USD 65.5 bn to USD 67.1 bn.
Current level of Debt/GDP ratio broadly coincides with World average-2015 (81.3%). The ratio is much less than average for advanced economies (105.8%), but at the same time much higher than average for emerging markets (45.4%).

15. USD/UAH official exchange rate
Public and publicly guaranteed debt Monetary policy: rate of exchange and interest rates
NBU discount rate
On May 26 NBU cut discount rate to 18% due to slowing inflation. Last change of discount rate (cut from 22% to 19%) was in April 2016;
NBU intends to continue gradual monetary policy easing if 1) program with IMF back on track, 2) inflation risks continue to fall;
Interest rate on overnight liquidity providing transactions cut from 21% to 20% (discount rate + 2%);
Interest rate on overnight certificates of deposit cut from 17% to 16% (discount rate – 2%);
Next NBU meeting on interest rates will be on Jun 23.
USD/UAH official exchange rate
USD/UAH average official exchange rate from 1 to 24 of May was (hryvnia appreciated 1.5%, compared with April average values);
UAH depreciation to USD, compared with average Dec rates, was 7.3%. Largest part of depreciation was in Jan-Feb (11.3% compared with Dec 2015). In Mar-May (as of May 24) hryvnia reversed course and appreciated 4.5%.

16. Monetary policy: money supply
Cash (M0), % change compared with the same month of the previous year
Monetary base, % change compared with the same month of the previous year
In April money supply growth was larger than during the last 12 months:
M0 increased UAH 10.1 bn, or 3.8%, to UAH bn;
Monetary base increased UAH 8.6 bn, or 2.6%, to UAH bn.
Annual (May 2015 – Apr 2016) growth of monetary base was UAH 5.5 bn, or 1.7%. At the same period, M0 declined UAH 6.2 bn, or 2.2%.

17. Insolvent Banks (as of 27 May 2016)
77 banks have been recognized insolvent by the NBU Resolutions since , of which:
1 bank (Astra) has been sold to private investors;
7 banks are managed by provisional administrations;
69 banks are under liquidation procedures.
11 banks have been recognized insolvent since the start of the year, 2 of which (Soyuz and Premium) due to violation of financial monitoring legislation;
3 banks (Fidobank, Mykhailivskiy, Smartbank) have been recognized insolvent in May. Their combined assets as of 1 Apr 2016 were UAH 11.1 bn, deposits and current accounts of private persons – UAH 4.0 bn.
Number of banks classified insolvent

18. Deposits Corporate deposits, bn Household deposits, bn
In April hryvnia deposits increased 1.6%, to UAH bn. Although deposit portfolio in Jan-Apr declined 1.4%, overall trend remains growing since the end of 2014;
In April FX deposits increased 4.7%, to USD 5.1 bn. Growth since the start of the year was 11.8%.
Household deposits, bn
In April hryvnia deposits increased 2.4%, to UAH bn. Decline since the start of the year was 0.3%;
FX deposits were broadly stable since the start of the year – decline in Jan-Apr was 0.2%. FX deposits grew 0.3% in April.

19. Credits Household credits, bn
FX credits in April declined to USD 3.6 bn, compared with USD 5.9 bn year ago (-39%). Decline since the start of the year is 7.4%;
Volume of FX household credits declined 87%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio declined 0.5 bn, to UAH 76.3 bn in April. UAH credit portfolio declines steadily (27%, compared with April 2015).
Corporate credits, bn
In April FX credit portfolio grew 0.3%, to USD 18.7 bn. Overall trend still remains negative. Annual decline was 14.5%;
In April UAH credit portfolio declined 0.6%, to UAH bn. Decline from April 2015 was 14.3%.