1. Macroeconomic Review
June 2016

2. Summary GDP grew 0.1% in 1Q’2016 to 1Q’2015;
Industrial production, transport and retail trade growth slowed in May. Construction growth continued to strengthen. Agriculture contraction diminished;
12-m CPI growth slowed to 7.5% in May (compared with 9.8% month ago and last year peak 60.9%). PPI quickened sharply to 16.4% from 10.1% month ago (last year peak was 51.7%).
Unemployment rate in 1Q’2016 grew to 9.9%. Workforce supply/demand ratio fell to 9.2 in May, compared with 11.0 in April;
Annual (May 2015 – April 2016) deficit of current account (CA) was USD 0.4 bn, or 0.5% of GDP. CA deficit in Jan-Apr 2016 was USD 0.6 bn, or 2.6% of GDP;
Net FDI inflows were USD 1.8 bn in Jan-Apr Most of them were conversion of Ukrainian banks external debt into equity;
Gross international reserves were USD 13.5 bn (3.4 m of import coverage) as of 1 Jun;
External debt declined to USD 117 bn at the end of 1Q’2016, compared with peak USD 142 bn at the end of 2013;
Deficit of consolidated budget was UAH 5.1 bn in Jan-Apr 2016, compared with surplus UAH 18.5 bn in Jan-Apr Public and publicly guaranteed debt was UAH bn (USD 67 bn) as of 1 May;
Money supply (M0 and monetary base) in May grew moderately;
NBU cut discount rate from 18% to 16.5% in June. Next NBU meeting will be on July 28.

3. GDP
GDP, % change compared with the same quarter of the previous year GDP, % change compared with the previous quarter
GDP grew 0.1% in 1Q’2016, compared with 1Q’2015. Industrial production, construction, transport, retail trade were among growing industries. It was decline in agriculture;
GDP declined 0.7% in 1Q’2016, compared with 4Q’2015. Decline was after two straight growing quarters in 2H’2015;
IMF, World Bank and EBRD expect GDP growth in 2016 will be 1-2%;
GDP decline in 2015 was 9.9%. It was 6.6% in 2014.

4. Industrial production and transport
Industrial production, cumulative % change compared with the same period of the previous year
Industrial production growth in Jan-May 2016 to Jan-May 2015 was 3.1%;
Industrial production growth slowed to 0.2% in May 2016, compared with May It is the forth consecutive slowing month (after 3.5% in April, 4.8% in March and 7.6% in February);
In May growth was kept in manufacturing (2.5%, compared with May 2015). Mining industries and Electricity, gas, steam and conditioning air supply contracted 3.5% and 1.9% respectively.
Freight turnover, cumulative % change compared with the same period of the previous year
Freight turnover growth in Jan-May 2016 to Jan-May 2015 slowed to 2.8%, compared with 4.2% in the 1Q’2016;
The fastest growth of freight turnover was in pipelines (+26.6%). It was supported by motor vehicles and aircraft - 5.8% and 3.5% respectively. Freight turnover of railway trains and water transport continued to decline – 5.5% and 34.8% respectively.

5. Construction and agriculture
Construction, cumulative % change compared with the same period of the previous year
In Jan-May 2016 to Jan-May 2015 construction grew 9.3%;
In May all construction subsectors, including residential and non-residential buildings construction, continued to grow.
Agriculture, cumulative % change compared with the same period of the previous year
In Jan-May 2016 contraction in agriculture was 1.3%, compared with the same period of the previous year;
Agriculture contraction in 2015 was 4.8%.

6. Retail trade and households incomes
Retail trade turnover, cumulative % change compared with the same period of the previous year
Retail trade turnover growth slowed to 1.8% in Jan-May 2016, compared with the same period of the previous year. It was 2.5% in Jan-Apr;
Retail trade decline was 20.7% in 2015.
Households real income, % change compared with the same quarter of the previous year
Decline of real income of households diminished to -16.0% in the 4Q’2015, compared with the 4Q’2014. The sharpest fall was -30.4% in the 2Q’2015;
Real wages declined 6.8% in 1Q’2016, compared with 1Q’2015;
Real wages grew 7.6% in April 2016, compared with April 2015;
Remarkable improvement of real wages dynamics in last months was due to moderating inflation.

7. Unemployment rate, % ILO methodology
Labor market
Unemployment rate, % ILO methodology
Key labor market indicators as of 1Q’2016:
Unemployment rate was 9.9%;
Civilian labor force was 17.8 m persons, of which unemployed persons – 1.8 m;
Participation rate was 61.7%;
Employment-population ratio was 55.6%.
Workforce supply was 9.2 times more than demand in May 2016, compared with 11.0 in April. Ratio fall was due to simultaneous increase of demand (from 40 to 45 th persons) and decline of supply (from 435 to 416 th persons).
The indicator peaked in December 2015 – 18.9 (the highest value in decade).

8. Inflation CPI increased 0.1% in May, of which food prices – 0.2%;
Inflation, yoy % change
CPI increased 0.1% in May, of which food prices – 0.2%;
12-m CPI growth slowed to 7.5% as of May, compared with 9.8% as of April, and with peak 60.9% in April 2015;
PPI increased sharply 5.3% in May, led by mining and extractive industries (19.7%) and metallurgy (13.4%). Increase of prices in these industries was caused by prices changes on external commodities markets;
12-m PPI stopped slowing and quickened growth to 16.4%, compared with 10.1% in April. In spite of sharp growth, PPI level remains well below peak 51.7% as of March 2015.

9. Current account and it’s components
Current account (CA) balance, 12-m sliding curve, USD bn
In April CA surplus was USD 327 m, compared with deficit USD 460 m in March. Of USD 787 m improvement, USD 550 m were due to much better primary incomes balance, after interest payments on external debt in March. Balance of trade in goods improved USD 278 m;
CA deficit in Jan-Apr 2016 was USD 639 m, or 2.6% of GDP, compared with deficit USD 407 m (1.6% of GDP) in Jan-Apr 2015;
Annual (May 2015 – Apr 2016) CA deficit was USD 0.4 bn, or 0.5% of GDP.
Trade in goods, 12-m sliding curve, USD bn
In April 2016 to April 2015 export of goods grew 0.1% (to USD 2.9 bn). It was the first growth after more than 2 years of decline. Agriculture goods export increased 18.5%, minerals – 1.2%. Other major export components continued to decline;
In April 2016 to April 2015 import of goods declined 2.2%, to USD 3.0 bn. Decline of import volumes was due to fall of energy import (-55.1%). Non-energy import grew 20.8%;
The largest trade partner of Ukraine in Jan-Apr 2016 was EU. EU share in external goods turnover was 36.8%. Share of Russia declined to 9.6%.

10. Terms of trade index (prices)
In April index continued to restore (from 94.2 to 97.6), but it still remains below 100 (since May 2014). Index value below 100 reflects negative terms of trade. Low index value was due to faster decline of export prices (index value 92.0) than import prices (94.2).
Terms of trade index (physical volumes) In April index restored above 100 (it grew from 93.8 to 101.1). Index value above 100 means positive terms of trade. Index improvement in April was due to faster growth of physical export volumes (index value 109.2) then physical import volumes (index value 108.0).

11. Foreign direct investments
Net FDI , USD m
Net FDI in April 2016 were USD 484 m, of which to banking sector – USD 337 m (USD 145 m of them – conversion of long-term debt into equity);
Net FDI in Jan-Apr 2016 were USD 1.8 bn, compared with USD 0.5 bn in Jan-Apr Large share of them (USD 0.8 bn) was generated in February by conversion of Prominvestbank debt to stakeholder (VEB) 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
International Reserves, months of import coverage
Gross international reserves (GIR) of NBU rose to USD 13.5 bn as of 1 Jun 2016, compared with USD 13.2 bn as of 1 May 2016;
GIR increase was ensured by NBU interventions – NBU net purchases of currency were USD 333 m in May;
GIR are equal to 3.4 months of import coverage;
GIR are well above the lowest point – USD 5.6 bn, or 1 month of import coverage, - reached at the end of February 2015.
External Debt, eop USD bn
External debt declined to USD bn as of the end of the 1Q’2016, compared with USD bn at the end of the 4Q’2015;
External debt declined significantly, compared with the historical maximum level (USD bn as of 1 Jan 2014).

13. Budget
Balance of consolidated budget, UAH bn
Balance of consolidated budget, % of GDP
Deficit of consolidated budget declined from UAH 72 bn to UAH 31 bn in 2015, or from 4.5% to 1.6% of GDP;
In Jan-Apr 2016 deficit was UAH 5.1 bn, compared with surplus UAH 18.5 bn year ago;
Deficit in April was USD 8.9 bn.

14. Public and publicly guaranteed debt
Nominal values, bn
% of GDP
Public and publicly guaranteed debt increased from 69.4% to 79.4% of GDP during Increase in 2015 (+10.0% of GDP) was much less than in 2014 (+29.5% of GDP). Large part of Debt/GDP ratio growth was due to GDP contraction (-9.9% in 2015).
In Jan-Apr 2016 public and publicly guaranteed debt grew from UAH bn to UAH bn. At the same time, debt grew from USD 65.5 bn to USD 67.1 bn.
Current level of Debt/GDP ratio broadly coincides with World average-2015 (81.3%). The ratio is much less than average for advanced economies (105.8%), but at the same time much higher than average for emerging markets (45.4%).

15. Monetary policy: rate of exchange and interest rates
USD/UAH official exchange rate
USD/UAH average official exchange rate from 1 to 23 of June was (hryvnia appreciated 0.9%, compared with May average values);
UAH depreciation to USD, compared with average Dec-2015 rates, was 6.3%. Largest part of depreciation was in Jan-Feb 2016 (11.3% compared with Dec 2015). In Mar-Jun (as of Jun 23) hryvnia reversed course and appreciated 5.7%.
NBU discount rate
On Jun 23 NBU cut discount rate to 16.5% due to slowing CPI. Last change of discount rate (cut from 19% to 18%) was in May 2016;
NBU intends to continue gradual monetary policy easing if 1) program with IMF back on track, 2) inflation risks continue to fall;
Interest rate on overnight liquidity providing transactions cut from 20% to 18.5% (discount rate + 2%);
Interest rate on overnight certificates of deposit cut from 16% to 14.5% (discount rate – 2%);
Next NBU meeting on interest rates will be on Jul 28.

16. Monetary policy: money supply
Cash (M0), % change compared with the same month of the previous year
Monetary base, % change compared with the same month of the previous year
In May money supply was moderate:
M0 increased UAH 2.7 bn, or 1.0%, to UAH bn;
Monetary base increased UAH 1.5 bn, or 0.5%, to UAH bn.
Annual (June 2015 – May 2016) growth of monetary base was UAH 7.8 bn, or 2.4%. At the same period, M0 decline diminished to UAH 1.6 bn, or 0.6%.

17. Insolvent Banks (as of 24 Jun 2016)
Number of banks classified insolvent
81 banks have been recognized insolvent by the NBU Resolutions or decided to leave the market since , of which:
1 bank (Astra) has been sold to private investors;
8 banks are managed by provisional administrations;
72 banks are under liquidation procedures, 2 of which (Investment Trust Bank and Finance Bank) decided to liquidate business themselves.
15 banks have been recognized insolvent or decided to leave the market since the start of the year;
4 banks were recognized insolvent (Classicbank and Eurobank) or decided to leave the market themselves (Finance Bank and Investment Trust Bank) after 27 May 2016 (date of previous Macroeconomic Review).
102 banks continue to work in normal mode.

18. Households deposits, bn
In May hryvnia deposits increased 0.1%, to UAH bn. Decline since the start of the year was 0.3%;
FX deposits were broadly stable since the start of the year – decline in Jan-May was 0.4%. FX deposits declined 0.2% in May.
Corporate deposits, bn
In May hryvnia deposits increased 4.1%, to UAH bn. Deposit portfolio in Jan-May grew 2.6%;
In May FX deposits declined 4.3%, to USD 4.9 bn. In spite of this, deposit portfolio has grown 7.1% since the start of the year.

19. Credits Households credits, bn
FX credits portfolio in May remained broadly unchanged - USD 3.6 bn. Decline since the start of the year was 8.4%, annual decline – 24.7%;
Volume of FX household credits declined 87%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio grew UAH 0.6 bn, to UAH 76.9 bn in May. UAH credit portfolio was stable since the start of the year (decline 0.9%), but declined significantly in annual terms – 23.2%.
Corporate credits, bn
In May FX credit portfolio declined 0.7%, to USD 18.6 bn. Overall trend still remains negative. Annual decline was 12.9%;
In May UAH credit portfolio grew 0.1%, to UAH bn. Decline since April 2015 was 10.1%.