1. Macroeconomic Review
April 2017

2. Summary
Real GDP increased 2.3% in Growth accelerated to 4.8% in the 4Q’2016, compared with the 4Q’2015;
Trends in major branches of economy in March were contradictory. Construction and transport kept robust growth. Retail trade returned to growth after contraction in February. Industrial production contracted the second consecutive month (triggered by blockade of trade with certain areas of Donetsk and Luhansk oblasts in February). Decline in agriculture diminished;
12-m CPI growth accelerated to 15.1% in March, compared with 14.2% month ago. 12-m PPI slowed to 38.3% from 38.9% month ago;
Unemployment rate in the 4Q’2016 increased to 9.7% from 8.8% in the 3Q’2016. Workforce supply/demand ratio declined to 5.5 in March, compared with 7.7 in February;
Real wages grew 18.0% in Feb 2017 to Feb Real incomes of households declined 1.0% in the 4Q’2016, compared with the 4Q’2015. Real incomes grew 0.3% in 2016;
Current account (CA) deficit in Jan-Feb 2017 was USD 541 m (4.3% of GDP). Annual (Mar 2016 – Feb 2017) CA deficit was USD 3.5 bn (3.7% of GDP);
Net FDI inflows in Jan-Feb 2017 were USD 62 m. Net FDI inflows were USD 3.4 bn in 2016;
Gross international reserves (GIR) were USD 15.1 bn (3.3 m of import coverage) as of Apr 1. GIR increased to USD 16.7 bn (3.6 m of import coverage) as of 5 Apr after receiving financial support from IMF and EU (USD 1 bn and EUR 0.6 bn respectively);
External debt declined to USD 113 bn at the end of the 4Q’2016, compared with USD 116 bn at the end of the 3Q’2016. External debt declined USD 29 bn from peak USD 142 bn at the end of 2013;
Surplus of consolidated budget in Jan-Feb 2017 was UAH 18 bn. Deficit of consolidated budget in 2016 was 2.3% of GDP;
Public and publicly guaranteed debt increased to UAH bn (USD 72 bn) as of Mar 1. It was UAH bn (USD 71 bn), or 81.0% of GDP, as of 1 Jan;
In March M0 and monetary base declined again (the third consecutive month). Annual growth of M0 and monetary base remained moderate: 7.9% and 9.1% respectively;
NBU cut discount rate from 14.0% to 13.0% in April. Next NBU meeting will be on May 25.

3. GDP Real GDP increased 2.3% in 2016;
Real GDP, percent change from quarter one year ago
Real GDP, percent change from preceding quarter
Real GDP increased 2.3% in 2016;
GDP increased 4.8% in the 4Q’2016, compared with the 4Q’2015. Growth accelerated from 2.3% in preceding quarter;
GDP increased 1.9% in the 4Q’2016, compared with the 3Q’2016. Growth accelerated from 1.4% in preceding quarter;
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 declined 0.7% in 1Q’2017, compared with 1Q’2016;
Industrial production contracted 2.7% in March 2017 to March 2016, of which Electricity, gas, steam and conditioning air supply contracted 13.8%, mining industries – 8.9%. Manufacturing kept growth 3.0%;
Industrial production decline was triggered by blockade of trade with certain areas of Donetsk and Luhansk oblasts;
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 11.9% in 1Q’ 2017, compared with 1Q’2016 (from 16.6% in Jan-Feb 2017 to Jan-Feb 2016);
Growth of freight turnover was driven by following subsectors: water transport (32.0%), pipelines (14.7%), railway trains (10.6%) and motor vehicles (10.0%). Freight turnover of aircraft declined 10.0%;
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 Mar 2017 to Mar 2016 rebounded to 11.5%, after sharp deceleration from 35.0% to 4.8% in Feb 2017 to Feb 2016;
Construction increased 19.4% in 1Q’2017, compared with 1Q’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 decline in 1Q’2017, compared with 1Q’2016, diminished to 0.8%, from decline 1.7% in Jan-Feb 2017 to Jan-Feb 2016;
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 restored to 3.1% in 1Q’2017, compared with 1Q’2016 (from 0.5% in Jan-Feb 2017 to Jan-Feb 2016). Retail trade turnover grew 8.7% in Mar 2017, compared with Mar 2016 (it declined 1.7% in Feb 2017 to Feb 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 declined 1.0% in the 4Q’2016 (compared with the 4Q’2015), after 9.0% growth in the 3Q’2016;
Real incomes of households grew 0.3% in 2016, after 22.3% drop in 2015;
Real wages increased 18.0% in Feb 2017, compared with Feb 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 4Q’2016:
Unemployment rate was 9.7%;
Civilian labor force was 17.8 m persons, of which unemployed persons – 1.7 m;
Participation rate was 61.7%;
Employment-population ratio was 55.7%.
Workforce supply was 5.5 times more than demand in March, compared with 7.7 in February. The ratio declined due to increase of demand (from 57 to 74 th people) and simultaneous decline of supply (from 439 to 407 th people). Workforce demand in March was the highest since Oct 2013.
The indicator peaked in December 2015 – 18.9 (the highest value in decade).

8. Inflation CPI increased 1.8% in March. Food prices grew 1.1%;
Inflation, yoy % change
CPI increased 1.8% in March. Food prices grew 1.1%;
12-m CPI growth accelerated to 15.1% as of March, compared with 14.2% as of February. 12-m CPI remains well below peak 60.9% in April 2015;
PPI rose 3.5% in March. Electricity, gas, steam and air-conditioning supply prices increased 8.7%. Prices in mining industries and manufacturing grew 4.3% and 1.5% respectively;
12-m PPI decelerated to 38.3%, compared with 38.9% as of February.

9. Current account and it’s components
Current account (CA) balance, 12-m sliding curve, USD bn
In Feb 2017 CA deficit was USD 399 m, compared with USD 502 m in Feb 2016;
In Jan-Feb 2017 CA deficit was USD 541 m (4.3% of GDP), compared with USD 861 m (7.9% of GDP) in Jan-Feb 2016;
Annual (Mar 2016 – Feb 2017) CA deficit was USD 3.5 bn (3.7% 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 Feb 2017 was USD 3.0 bn. It increased 20.9%, compared with Feb 2016;
Import of goods in Feb 2017 was USD 3.8 bn. It increased 16.7%, compared with Feb 2016;
The largest trade partner of Ukraine in Jan-Feb 2017 was EU. EU share in external goods turnover was 36.1%. Share of Russia was 11.8%.

10. Terms of trade index (prices)
In February index value increased from to Value above 100 reflects positive terms of trade. Positive index value was due to more significant rise (compared with the same month of the previous year) of export prices (index value 127.1), than import prices (index value 116.8).
Terms of trade index (physical volumes) In February index value fell from to Index value below 100 means negative terms of trade. Negative changes were due to decline (compared with the same month of the previous year) of physical export volumes (index value 95.1). Physical import volumes were broadly unchanged (index value 99.8)

11. Foreign direct investments
Net FDI , USD m
Net FDI in Feb 2017 increased USD 45 m;
Net FDI in Jan-Feb 2017 increased USD 62 m. All of them were to the real sector of economy;
Net FDI in 2016 were USD 3.4 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 declined to USD 15.1 bn (3.3 months of import coverage) as of 1 Apr 2017, compared with USD 15.5 bn as of 1 Mar 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 March declined to USD 3.7 bn, compared with USD 4.1 bn month ago.
GIR increased to USD 16.7 bn (3.6 months of import coverage) as of 5 Apr 2017 after receiving financial support from IMF and EU (USD 1 bn and EUR 0.6 bn respectively).
External Debt, eop USD bn
External debt declined:
USD 2.5 bn, to USD bn, in the Q4’2016;
USD 5.2 bn in 2016;
USD 28.6 bn, compared with the historical maximum level (USD bn as of 1 Jan 2014).

13. Budget Deficit of consolidated budget in Feb 2017 was UAH 7 bn;
Balance of consolidated budget, UAH bn
Balance of consolidated budget, % of GDP
Deficit of consolidated budget in Feb 2017 was UAH 7 bn;
Surplus of consolidated budget in Jan-Feb 2017 was UAH 18 bn;
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 Feb 2017 public and publicly guaranteed debt increased UAH 10 bn, to UAH bn. In dollar terms, debt grew USD 0.6 bn, to USD 71.8 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 April hryvnia was broadly stable. Average USD/UAH from 1 to 25 of April was 26.91, compared with Mar 2017 average (hryvnia appreciated 0.3% to US dollar);
UAH depreciation to USD from Apr 2016 to Apr 2017 (average monthly rates as of Apr 25) was 4.8%;
Average USD/UAH in 2016 was 25.55, compared with 2015-average (UAH depreciation to USD was 14.5%).
NBU discount rate
On Apr 13 NBU cut discount rate from 14% to 13.0%. It has been the first change of discount rate since October 2016 (cut from 15.0% to 14.0%);
Interest rate on overnight liquidity providing transactions was cut from 16.0% to 15.0% (discount rate + 2%);
Interest rate on overnight certificates of deposit was cut from 13.0% to 11.0% (discount rate – 2%);
Next NBU meeting on interest rates will be on May

16. Monetary policy: money supply
Cash (M0), percent change from month one year ago
Monetary base, percent change from month one year ago
Changes in money supply in March:
Monetary base declined UAH 4.6 bn, or 1.3%, to UAH bn;
M0 declined UAH 0.7 bn, or 0.2%, to UAH bn.
Annual growth of monetary aggregates remained moderate:
Monetary base increased UAH 29.7 bn, or 9.1%;
M0 increased 21.3 bn, or 7.9%.

17. Insolvent Banks (as of 25 Apr 2017)
Number of banks classified insolvent
2 banks (Finbank and Diamantbank) have been recognized insolvent in April (as of Apr 25);
93 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;
5 banks (Rodovid, Unison, Finansova Iniciatyva, Finbank and Diamantbank) are managed by provisional administrations;
84 banks are under liquidation procedures.
90 banks continue to operate in normal mode (as of Apr 25;
After Privatbank recapitalization, market share of government controlled banks increased to 51.3% (as of 1 Jan 2017), share of subsidiaries of foreign banking groups was 34.9%. Market share of other banks declined to 13.8%.

18. Households deposits, bn
In March hryvnia deposits increased 1.9%, to UAH bn. Annual (Apr 2016 – Mar 2017) growth was 10.0%;
In March FX deposits declined 0.7%, to USD 8.3 bn. Annual (Apr 2016 – Mar 2017) decline was 4.9%.
Corporate deposits, bn
In March hryvnia deposit portfolio grew 4.7%, to UAH bn. Annual (Apr 2016 – Mar 2017) growth of deposit portfolio was 15.7%;
In March FX deposits increased 2.4%, to USD 4.8 bn. Annual (Apr 2016 – Mar 2017) decline of deposit portfolio was 2.1%.

19. Credits Households credits, bn
FX credit portfolio in March declined 2.6%, to USD 3.0 bn. Annual (Apr 2016 – Mar 2017) decline was 18.7%;
Volume of FX credits declined 89%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio in March grew 2.3%, to UAH 78.1 bn. Annual (Apr 2016 – Mar 2017) growth of UAH credit portfolio was 1.2%.
Corporate credits, bn
In March FX credit portfolio declined USD 2.0%, to USD 14.1 bn. Annual (Apr 2016 – Mar 2017) decline was 24.5%;
In March UAH credit portfolio increased 0.4%, to UAH bn. Annual (Apr 2016 – Mar 2017) increase of credit portfolio was 21.2%.