1. Macroeconomic Review
July 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;
Construction, transport and retail trade rose fast. Industrial production grew 3.8% in June, but 0.4% contraction still remains as of 1H’2017. Agriculture continued to decline;
12-m CPI accelerated to 15.6% in June, compared with 13.5% month ago. 12-m PPI slowed to 26.3% from 27.1% 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 5.0 in June (the lowest value since Sep 2013), compared with 5.1 in May;
Real wages grew 20.4% in May 2017 to May Real incomes of households grew 2.4% in the 1Q’2017, compared with the 1Q’2016. Real incomes grew 0.3% in 2016;
Current account (CA) deficit in Jan-May 2017 was USD 1.1 bn (2.8% of GDP). Annual (Jun 2016 – May 2017) CA deficit was USD 3.8 bn (4.1% of GDP);
Net FDI inflows in Jan-May 2017 were USD 0.5 bn. Net FDI inflows were USD 3.3 bn in 2016;
In June gross international reserves (GIR) of NBU increased USD 0.4 bn, to USD 18.0 bn (3.7 m of import coverage) as of Jul 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 May 2017 was UAH 12 bn. It widened to UAH 50 bn as of Jan-May Deficit of consolidated budget in 2016 was 2.3% of GDP;
Public and publicly guaranteed debt declined UAH 11 bn, to UAH bn in May (in dollar terms, debt grew USD 0.1 bn, to USD 74.7 bn). It was UAH bn (USD 71 bn), or 81.0% of GDP, as of Jan 1;
In June M0 and monetary base increased 2.4% and 3.7% respectively. Annual growth of M0 and monetary base was moderate: 7.3% and 8.3% respectively;
On Jul 6 NBU kept discount rate unchanged %. Next NBU meeting will be on Aug 3.

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 contraction diminished to 0.4% in 1H’2017, compared with 1H’2016;
Industrial production grew 3.8% in June 2017 to June 2016, of which manufacturing – 8.0%, mining industries – 0.7%. Electricity, gas, steam and conditioning air supply contracted 9.6%;
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 9.1% in 1H’2017, compared with 1H’2016. Growth was 10.0% in Jan-May 2017;
Almost all transport subsectors (besides aircraft) grew, namely: water transport %, pipelines %, motor vehicles - 8.8%, railway trains - 6.1%. Aircraft contracted 2.4%;
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 June 2017, compared with June 2016, accelerated to 31.9%;
Construction rose 24.6% in 1H’2017, compared with 1H’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 contraction in 1H’2017, compared with 1H’2016, was 2.1%. It was caused mainly by decline in crop production - 8.5%. Animal production contracted marginally - 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 7.3% in 1H’2017, compared with 1H’2016 (from 7.1% in Jan-May 2017 to Jan-May 2016). Retail trade turnover grew 9.0% in Jun 2017, compared with Jun 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 grew 2.4% in the 1Q’2017 (compared with the 1Q’2016), after 1.0% decline in the 4Q’2016;
Real incomes of households grew 0.3% in 2016, after 22.3% drop in 2015;
Real wages increased 20.4% in May 2017, compared with May 2016;
Real wages increased 19.7% in Jan-Apr 2017, compared with Jan-Apr 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 5.0 times more than demand in June (the lowest value since September 2013), compared with 5.1 in May. The ratio fell due to faster decline of supply (from 353 to 330 th people), than demand (from 69.6 to 66.5 th people).
The indicator peaked in December 2015 – 18.9 (the highest value in decade).

8. Inflation CPI increased 1.6% in June. Food prices grew 3.4%;
Inflation, yoy % change
CPI increased 1.6% in June. Food prices grew 3.4%;
12-m CPI growth accelerated to 15.6% as of June, compared with 13.5% as of May. 12-m CPI remains well below peak 60.9% in April 2015;
PPI declined 0.6% in June. Prices in mining industries and manufacturing fell 3.4% and 0.5% respectively. Electricity, gas, steam and air-conditioning supply prices increased 0.3%;
12-m PPI decelerated to 26.3% as of June, compared with 27.1% as of May.

9. Current account and it’s components
Current account (CA) balance, 12-m sliding curve, USD bn
In May 2017 CA deficit was USD 194 m, compared with surplus USD 293 m in May 2016;
In Jan-May 2017 CA deficit was USD 1.1 bn (2.8% of GDP);
Annual (Jun 2016 – May 2017) CA deficit was USD 3.8 bn (4.1% 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 May 2017 was USD 3.2 bn. It increased 21.4%, compared with May 2016;
Import of goods in May 2017 was USD 3.9 bn. It increased 40.9%, compared with May 2016;
The largest trade partner of Ukraine in Jan-May 2017 was EU. EU share in external goods turnover was 35.8%. Share of Russia was 11.2%.

10. Terms of trade index (prices)
In May index value declined from to Value below 100 reflects negative terms of trade. Negative index value was due to more significant rise (compared with the same month of the previous year) of import prices (index value 115.3), than export prices (index value 113.3).
Terms of trade index (physical volumes) In May index value declined from 90.9 to Index value below 100 means negative terms of trade. Negative changes were due to more significant rise (compared with the same month of the previous year) of physical import volumes (index value 127.8), than physical export volumes (index value 108.4).

11. Foreign direct investments
Net FDI , USD m
Net FDI in May 2017 increased USD 14 m;
Net FDI in Jan-May 2017 increased USD 526 m;
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 18.0 bn (3.7 months of import coverage) as of 1 Jul 2017, compared with USD 17.6 bn as of 1 Jun 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 June increased to USD 5.2 bn, compared with USD 5.0 bn month ago.
GIR increased mainly due to NBU interventions on interbank market (USD 0.3 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 Surplus of consolidated budget in May 2017 was UAH 12 bn;
Balance of consolidated budget, UAH bn
Balance of consolidated budget, % of GDP
Surplus of consolidated budget in May 2017 was UAH 12 bn;
Surplus of consolidated budget in Jan-May 2017 widened to UAH 50 bn (UAH 30 bn of which due to confiscation of Yanukovych’s funds in April);
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 May 2017 public and publicly guaranteed debt declined UAH 11 bn, to UAH bn. In dollar terms, debt grew USD 0.1 bn, to USD 74.7 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 July hryvnia was stable. Average USD/UAH from 1 to 25 of July was 25.98, compared with June 2017 average (hryvnia appreciated 0.5% to US dollar);
UAH depreciation to USD from July 2016 to July 2017 (average monthly rates as of July 25) was 4.5%;
Average USD/UAH in 2016 was 25.55, compared with 2015-average (UAH depreciation to USD was 14.5%).
NBU discount rate
On Jul 6 NBU kept discount rate unchanged %;
Interest rate on overnight liquidity providing transactions remained 14.5% (discount rate + 2%);
Interest rate on overnight certificates of deposit remained 10.5% (discount rate – 2%);
Next NBU meeting on interest rates will be on Aug

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 June:
Monetary base increased UAH 13.5 bn, or 3.7%, to UAH bn;
M0 increased UAH 7.1 bn, or 2.4%, to UAH bn.
Annual growth of monetary aggregates remained moderate:
Monetary base increased UAH 29.1 bn, or 8.3%;
M0 increased 20.9 bn, or 7.3%.

17. Insolvent Banks (as of 25 Jul 2017)
Number of banks classified insolvent
One bank (Novyi) has been recognized insolvent in July (as of Jul 25);
94 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 Novyi) are managed by provisional administrations;
88 banks are under liquidation procedures.
89 banks continue to operate in normal mode (as of Jul 25);
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 June hryvnia deposits grew 3.3%, to UAH bn. Annual (Jul 2016 – Jun 2017) growth was 12.2%;
In June FX deposits grew 0.3%, to USD 8.4 bn. Annual (Jul 2016 – Jun 2017) decline was 4.0%.
Corporate deposits, bn
In June hryvnia deposit portfolio increased 0.8%, to UAH bn. Annual (Jul 2016 – Jun 2017) growth of deposit portfolio was 9.7%;
In June FX deposits grew 0.7%, to USD 4.9 bn. Annual (Jul 2016 – Jun 2017) decline of deposit portfolio was 4.4%.

19. Credits Households credits, bn
FX credit portfolio in June declined 1.2%, to USD 2.9 bn. Annual (Jul 2016 – Jun 2017) decline was 18.1%;
Volume of FX credits declined 89%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio in June increased 1.3%, to UAH 81.8 bn. Annual (Jul 2016 – Jun 2017) growth of UAH credit portfolio was 8.6%.
Corporate credits, bn
In June FX credit portfolio declined 1.0%, to USD 13.9 bn. Annual (Jul 2016 – Jun 2017) decline was 22.8%;
In June UAH credit portfolio rose 1.9%, to UAH bn. Annual (Jul 2016 – Jun 2017) increase of credit portfolio was 24.8%.