Ukraine trade surplus increases in April

Макроэкономика 18.06.2014 Ukraine’s April trade balance on goods and services reached a USD 423 mln surplus compared to a USD 910 mln deficit in the same year-ago month, according to state statistics released on June 16. In 4M14, the trade balance was also positive at USD 351 mln (compared to a USD 3.2 bln deficit in 4M13). A much faster decline of imports (-29.3% yoy in April) on the back of a devaluation effect vs. a less dramatic contraction of exports (-10.5% yoy) remains the key reason for the trend. By countries, we see that falling exports to Russia, Kazakhstan and China were the main sources of declining exports (Russia was responsible for 4.6pp of decreasing exports in April). Alexander Paraschiy: Though the trade balance is improving, we must recognize that the tendency is somewhat worse than we anticipated, largely because of the strengthening decline in exports. In March, non-Russian exports were reviving (+3.5% yoy) but already in April, both Russian (-20.1% yoy) and non-Russian exports (-7.6% yoy) were in the red. The war in Ukraine’s eastern regions appears to be the main reason for exports worsening since about a quarter of the nation’s export-focused enterprises are located in the war zone. Gas imports are another point of concern. According to the NBU, the authorities counted gas supplies in April under the assumption that the gas price is USD 268.5/tcm. In fact, it is already clear that the price will be above USD 300/tcm, which means that in reality, the April trade balance was at least USD 250 mln worse than officially reported. Still the tendencies we observe do not mean that the trade deficit will start widening later in 2014. Non-energy imports slumped 35.4% yoy in April, mainly driven by the devalued hryvnia. Against this backdrop, even if the negative tendency on exports sustains itself, we see it very probable for the trade balance to shrink to only a USD 1.0 bln deficit for 2014 (according UkrStat methodology) vs. USD 13.7 bln in 2013. Still due to the uncertainty in eastern Ukraine and volatile economic performance nationally, we are sticking to our pessimism and are keeping our goods trade deficit projection at USD 5.5 bln in 2014, so far.