Ukraine trade deficit improves on growing black market

Макроэкономика 17.02.2014 Ukraine’s 2013 trade deficit (goods and services) declined 5.7% yoy to USD 8.5 bln from USD 9.0 bln in the prior year, according to state statistics reported on February 14. The services surplus was flat yoy at USD 6.9 bln while the goods trade deficit improved 13.9% yoy (USD 2.2 bln) to USD 13.7 bln vs. USD 15.9 bln in the prior year. The state statistics committee adjusted the 2013 goods statistics to include tolling operations (USD 1.7 bln), making the final trade deficit improvement less impressive, declining only USD 0.51 bln vs. USD 2.2 bln reported for the goods trade without the adjustment. Alexander Paraschiy: A 17.7% yoy decline in natural gas imports coupled with a 26.8% yoy decline in machinery imports (predominantly, locomotives and vessels) were the key reasons for the goods trade deficit improvement. Even the fast contraction of machinery (-43.9% yoy), chemicals (-14.5% yoy) and metals (-7.0% yoy) exports did not catch up with sliding imports, according to state statistics. Surprisingly, National Bank of Ukraine (NBU) statistics, which take into account the black market, offered a slightly different picture: in particular, the central bank claims that the general trade balance worsened 6.4% yoy to USD 15.2 bln in 2013 vs. USD 14.3 bln a year ago. The discrepancy in these two sets of official data can best be explained by black market operations ramping up last year. Surely, there are some methodological differences in these estimates but the role of the black market is bolstered by the gap between state statistics and NBU estimates on imports, which widened USD 2.5 bln yoy, while the difference remained almost unchanged for exports. For 2014, we expect the trade deficit will shrink based on both the NBU and state statistics estimates, with hryvnia devaluation standing behind this trend. In light of complicated access to the ForEx market for importers, we project more shadow external account operations. Against this backdrop, we expect an USD 11.8 bln trade deficit (NBU methodology) and USD 10.6 bln goods trade deficit (state statistics) in 2014.