Ukraine’s industry declines 6% in April

Макроэкономика 21.05.2014 Industrial production fell 6.0% yoy in April, slowing down somewhat from -6.8% yoy the previous month, according to a state statistics release on May 19. The core sectors of the economy have deepened in their decline with chemical production falling 23.3% yoy (vs. -2.3% yoy in March), machinery shrinking 18.9% yoy (-17.4% yoy a month ago), and metals sliding 12.8% yoy (-11.1% yoy). At the same time, utilities significantly improved to +1.1% yoy from -8.3% yoy in the prior month. Mining was still in the red (-1.6% yoy) but somewhat better than a month ago (-3.5% yoy). The April results imply that industry has extended its fall to -5.3% yoy in 4M14, from -5.0% yoy in 3M14. Alexander Paraschiy: Though the April industry decline was somewhat smaller than a month ago it does not look like that situation is improving. Core industries are deeply in the red and the strengthened utilities performance on the back of abnormally cold weather for the month appeared to be the main reason of better monthly results. In fact, it has gotten worse than we had anticipated. The hryvnia decline has not helped exporters so far. Apparently, the turmoil in the east is standing behind this continued negative performance. Still, we hope that after the presidential elections, the situation at the east will stabilize and economic performance will improve. Thus we are keeping our industrial output forecast unchanged at -5.1% yoy for 2014. Ukraine’s PM states Gazprom not ready to negotiate on gas The Russian side is not demonstrating its readiness to negotiate on the issues on supply of natural to Ukraine and its transit to EU countries, Ukrainian Prime Minster Arseniy Yatsenyk wrote in his appeal to EU leaders on May 20, according to a government press-release. All the previous talks with the Russian side on the issue were fruitless, according to Yatsenuyk. He re-iterated Ukraine’s position that price for Russian gas for Ukraine should be USD 268.5/tcm in 2Q14. He further confirmed Ukraine’s readiness to fully repay all the accumulated debt for gas supplies in ten days after this price offer is accepted. Yatsenyk also reported that Gazprom’s response to Ukrainian pre-arbitration note (of April 28 that demands revision of the gas contract) was negative. He stated that Ukraine is ready to sue Gazprom if it fails to meet its demands by the end of the month. The Prime Minister also repeated his earlier offer to EU leaders to start buying Russian gas at the Russian/Ukrainian border. Alexander Paraschiy: After the meeting of the EU and Russian Energy Minsters on May 19, it looked like a chance for compromise between Ukraine and Russia on gas issues was higher than before. The appeal of Yatsenyk indicates the probability of an early compromise is still low. At present, Ukraine is not ready to repay any debt for Russian gas, as the EU Energy Commissioner Günther Oettinger tried to offer a day before. All hopes are again related to some mutual talks between the EU and Russian sides, who are more interested in solving Ukraine’s gas issue than Ukraine is.