Ukraine current account near balanced in July

Макроэкономика 01.09.2015 Ukraine’s current account surplus narrowed to USD 65 mln in July from USD 368 mln in the prior month and USD 274 mln in July 2014, the National Bank of Ukraine (NBU) reported on Aug. 31. For 7M15, current accounts were reported at a USD 88 mln surplus (vs. a deficit of USD 2.7 bln in 7M14). The worsened C/A balance stemmed from an accelerating decline in exports (to -32% from -28% in June) amid slightly eased import contraction (-34% from -37% in June). Goods exports fell 35% yoy, mainly on the back of shrinking machinery (-51% yoy), minerals (-46% yoy), metals (-42% yoy) and food (-20% yoy). Goods imports slid 37% on declining demand for food (-47% yoy), metals (-44% yoy), machinery (-36% yoy), chemicals (-33% yoy) and energy (-19% yoy). Financial accounts strengthened in July to a USD 330 mln surplus from a USD 73 mln surplus in June and a USD 13 mln deficit in the same year-ago month. Financial accounts improved primarily owing to a EUR 600 mln loan from the EU. At the same time, FDI shrunk to USD 149 mln compared to USD 437 mln in June. Foreign currency returning to the banking system in July weakened to USD 94 mln in July compared to USD 227 mln in June. Ukraine’s general balance in July was reported at a USD 438 mln surplus. At the same time, Ukraine paid back nearly USD 218 mln to the IMF in July. As a result, gross international reserves increased very modestly to USD 10.4 bln by the end of July (compared to USD 10.3 bln in June), which is nearly 2.1 months of future imports, according to the NBU. Alexander Paraschiy: The gradual worsening of external accounts is in line with our expectations. The strengthened hryvnia, worsened global markets as well as the need for greater energy imports in 2H15 promise a renewed current account deficit in the upcoming months. We anticipate the C/A deficit to reach USD 2.2 bln (2.6% of GDP) by the end of 2015, exacerbated by a widening trade deficit. On the other hand, we anticipate further improvement of capital accounts on the back of external support and a four-year maturity extension on Eurobonds. Thus, even disregarding the widening C/A deficit, we anticipate gross international reserves building up to USD 15.7 bln (nearly four months of imports) by the year end.