1. Macroeconomic Review
June 2017

2. Summary
Real GDP increased 2.5% in the 1Q’2017, compared with the 1Q’2016. Growth slowed from 4.8% in the 4Q’2016;
Trends in major branches remains contradictory. Construction, transport and retail trade grew. Industrial production rebounded in May (1.2% growth to May 2016), but 1.3% contraction still remains as of Jan-May. Agriculture continue to decline marginally;
12-m CPI accelerated to 13.5% in May, compared with 12.2% month ago. 12-m PPI slowed to 27.1% from 35.6% 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 5.1 in May, compared with 5.8 in April;
Real wages grew 20.7% in Apr 2017 to Apr 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 Jan-Apr 2017 was USD 1.3 bn (4.6% of GDP). Annual (May 2016 – Apr 2017) CA deficit was USD 3.8 bn (4.0% of GDP);
Net FDI inflows in Jan-Apr 2017 were USD 190 m. Net FDI inflows were USD 3.3 bn in 2016;
In May gross international reserves (GIR) of NBU increased USD 0.4 bn, to USD 17.6 bn (3.7 m of import coverage) as of Jun 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 Apr 2017 was UAH 35 bn (due to confiscation of UAH 30 bn of Yanukovych’s funds). Deficit of consolidated budget in 2016 was 2.3% of GDP;
Public and publicly guaranteed debt increased to UAH bn (USD 74 bn) as of May 1. It was UAH bn (USD 71 bn), or 81.0% of GDP, as of Jan 1;
In May M0 increased 0.9%, monetary base was broadly unchanged. Annual growth of M0 and monetary base remained moderate: 7.0% and 9.1% 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 2.5% 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 1.3% in Jan-May 2017, compared with Jan-May 2016;
Industrial production grew 1.2% in May 2017 to May 2016, of which manufacturing – 6.1%. Mining industries and Electricity, gas, steam and conditioning air supply contracted 4.6% and 9.6% respectively;
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 10.0% in Jan-May 2017, compared with Jan-May 2016;
All transport subsectors grew, namely: water transport (21.7%), pipelines (15.7%), motor vehicles (9.8%), railway trains (7.0%), aircraft (3.2%);
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 May 2017, compared with May 2016, accelerated to 24.5%, from 7.4% in Apr 2017 to Apr 2016;
Construction increased 20.8% in Jan-May 2017, compared with Jan-May 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-May 2017, compared with Jan-May 2016, was 0.9%;
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 7.1% in Jan-May 2017, compared with Jan-May 2016 (from 5.8% in Jan-Apr 2017 to Jan-Apr 2016). Retail trade turnover grew 10.7% in May 2017, compared with May 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 20.7% in Apr 2017, compared with Apr 2016;
Real wages increased 19.3% in 1Q’2017, compared with 1Q’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 5.1 times more than demand in May, compared with 5.8 in April. The ratio fell due to decline of supply (from 374 to 353 th people) and simultaneous rise of demand on workforce (from 64 to 70 th people).
The indicator peaked in December 2015 – 18.9 (the highest value in decade).

8. Inflation CPI increased 1.3% in May. Food prices grew 2.4%;
Inflation, yoy % change
CPI increased 1.3% in May. Food prices grew 2.4%;
12-m CPI growth accelerated to 13.5% as of May, compared with 12.2% as of April. 12-m CPI remains well below peak 60.9% in April 2015;
PPI declined 1.3% in May. Prices in Mining industries and Electricity, gas, steam and air-conditioning supply prices fell 9.8% and 2.1% respectively. Prices in manufacturing grew 0.5%;
12-m PPI decelerated to 27.1% as of May, compared with 35.6% as of April.

9. Current account and it’s components
Current account (CA) balance, 12-m sliding curve, USD bn
In Apr 2017 CA deficit was USD 146 m, compared with surplus USD 164 m in Apr 2016;
In Jan-Apr 2017 CA deficit was USD 1.3 bn (4.6% of GDP);
Annual (May 2016 – Apr 2017) CA deficit was USD 3.8 bn (4.0% 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 Apr 2017 was USD 3.1 bn. It increased 7.5%, compared with Apr 2016;
Import of goods in Apr 2017 was USD 3.5 bn. It increased 13.4%, compared with Apr 2016;
The largest trade partner of Ukraine in Jan-Apr 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 April 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 118.5), than import prices (index value 115.4).
Terms of trade index (physical volumes) In April index value declined from 95.0 to Index value below 100 means negative terms of trade. Negative changes were due to decline (compared with the same month of the previous year) of physical export volumes (index value 91.0). Physical import volumes were broadly stable (index value 100.1)

11. Foreign direct investments
Net FDI , USD m
Net FDI in Apr 2017 increased USD 43 m;
Net FDI in Jan-Apr 2017 increased USD 190 m. Most of them (86%) 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 17.6 bn (3.7 months of import coverage) as of 1 Jun 2017, compared with USD 17.2 bn as of 1 May 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 May increased to USD 5.0 bn, compared with USD 4.6 bn month ago.
GIR increased mainly due to NBU interventions on interbank market (USD 0.5 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
Balance of consolidated budget, UAH bn
Balance of consolidated budget, % of GDP
Surplus of consolidated budget in Apr 2017 was UAH 35 bn (due to confiscation of UAH 30 bn of Yanukovych’s funds);
Surplus of consolidated budget in Jan-Apr 2017 widened to UAH 39 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 Apr 2017 public and publicly guaranteed debt increased UAH 21 bn, to UAH bn. In dollar terms, debt grew USD 2.0 bn, to USD 74.3 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 June hryvnia was stable. Average USD/UAH from 1 to 26 of June was 26.11, compared with May 2017 average (hryvnia appreciated 1.2% to US dollar);
UAH depreciation to USD from June 2016 to June 2017 (average monthly rates as of June 26) was 4.4%;
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
Changes of money supply in May:
Monetary base declined UAH 0.1 bn, or 0.0%, to UAH bn;
M0 increased UAH 2.8 bn, or 0.9%, to UAH bn.
Annual growth of monetary aggregates remained moderate:
Monetary base increased UAH 30.9 bn, or 9.1%;
M0 increased 19.7 bn, or 7.0%.

17. Insolvent Banks (as of 26 Jun 2017)
Number of banks classified insolvent
No one bank has been recognized insolvent since Apr 24 (as of Jun 26);
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 Jun 26);
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 declined to 14.2%.

18. Households deposits, bn
In May hryvnia deposits declined 0.3%, to UAH bn. Annual (Jun 2016 – May 2017) growth was 11.6%;
In May FX deposits declined 0.1%, to USD 8.3 bn. Annual (Jun 2016 – May 2017) decline was 4.4%.
Corporate deposits, bn
In May hryvnia deposit portfolio increased 0.1%, to UAH bn. Annual (Jun 2016 – May 2017) growth of deposit portfolio was 9.8%;
In May FX deposits declined 0.1%, to USD 4.9 bn. Annual (Jun 2016 – May 2017) growth of deposit portfolio was 0.3%.

19. Credits Households credits, bn
FX credit portfolio in May declined 1.5%, to USD 2.9 bn. Annual (Jun 2016 – May 2017) decline was 18.7%;
Volume of FX credits declined 89%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio in May increased 1.7%, to UAH 80.1 bn. Annual (Jun 2016 – may 2017) growth of UAH credit portfolio was 4.8%.
Corporate credits, bn
In May FX credit portfolio rose 0.2%, to USD 14.1 bn. Annual (Jun 2016 – May 2017) decline was 24.1%;
In May UAH credit portfolio declined 0.5%, to UAH bn. Annual (Jun 2016 – May 2017) increase of credit portfolio was 21.7%.