1. Macroeconomic Review
August 2016

2. Summary GDP grew 1.3% in 2Q’2016 to 2Q’2015;
In Jan-Jul 2016 all major branches (industrial production, transport, agriculture, retail trade and construction) grew. On the positive side in July: growth renewed in agriculture. On the negative side: weakening trends in transport and industrial production;
12-m CPI growth accelerated to 7.9% in July (compared with 6.9% month ago and last year peak 60.9%). PPI accelerated to 18.3% from 15.7% month ago (last year peak was 51.7%);
Unemployment rate in 1Q’2016 grew to 9.9%. Workforce supply/demand ratio fell to 8.7 in July, compared with 9.5 in June;
Annual (July 2015 – June 2016) deficit of current account (CA) was USD 0.2 bn, or 0.3% of GDP. CA deficit in 1H’2016 was USD 0.2 bn, or 0.5% of GDP;
Net FDI inflows were USD 2.0 bn in 1H’2016. Most of them were conversion of Ukrainian banks external debt into equity;
Gross international reserves were USD 14.1 bn (3.6 m of import coverage) as of 1 Aug;
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 11.3 bn in 1H’2016, compared with surplus UAH 12.3 bn in 1H’2015. Public and publicly guaranteed debt was UAH bn (USD 67 bn) as of 1 Jul;
Money supply (M0 and monetary base) in July increased moderately (2.3% and 0.6% respectively);
NBU cut discount rate from 16.5% to 15.5% in July. Next NBU meeting will be on September 15.

3. GDP GDP grew 1.3% in 2Q’2016, compared with 2Q’2015;
GDP, % change compared with the same quarter of the previous year GDP, % change compared with the previous quarter
GDP grew 1.3% in 2Q’2016, compared with 2Q’2015;
GDP grew 0.6% in 2Q’2016, compared with 1Q’2016. Growth restored after 0.7% contraction in the previous quarter;
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-Jul 2016 to Jan-Jul 2015 was 1.7%;
Industrial production contraction in July (compared with July 2015) diminished to -0.2%, after –3.4% in the previous month;
In July growth was in Electricity, gas, steam and conditioning air supply (6.2%, compared with July 2015). Manufacturing and mining industries contracted 1.5% and 0.4% respectively.
Freight turnover, cumulative % change compared with the same period of the previous year
Freight turnover growth in Jan-Jul 2016 to Jan-Jul 2015 slowed to 1.1%, compared with 2.4% in the 1H’2016 and 4.2% in the 1Q’2016;
The fastest growth of freight turnover was in pipelines (+18.0%). It was supported by aircraft and motor vehicles % and 7.5% respectively. Freight turnover of railway trains and water transport continued to decline – 5.6% and 34.1% respectively.

5. Construction and agriculture
Construction, cumulative % change compared with the same period of the previous year
In Jan-Jul 2016 to Jan-Jul 2015 construction growth accelerated to 11.0%, compared with 9.1% month ago;
Growth in July 2016 to July 2015 accelerated to 12.9%;
Construction contraction in 2015 was 12.3%.
Agriculture, cumulative % change compared with the same period of the previous year
In January-July 2016 agriculture grew 0.5%, compared with the same period of the previous year. Agriculture back to growth in July;
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 accelerated to 2.4% in Jan-Jul 2016, compared with the same period of the previous year. It was 2.3% in 1H’2016;
Since March, growth levels, compared with the same periods of the previous year, are broadly stable around 2%;
Retail trade decline was 20.7% in 2015.
Households real income, % change compared with the same quarter of the previous year
Decline of real incomes of households moderated to 14.9% in the 1Q’2016, compared with the 1Q’2015. The sharpest fall was 30.4% in the 2Q’2015;
Real wages grew 3.9% in Jan-May 2016, compared with Jan-May 2015;
Real wages grew 17.3% in June 2016, compared with June 2015;
Remarkable improvement of real wages dynamics in last months was due to moderating inflation.

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 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 8.7 times more than demand in July, compared with 9.5 in June. The ratio fell due to slight increase of demand (from 41 to 42 th people) and decline of supply (from 389 to 370 th people).
The indicator peaked in December 2015 – 18.9 (the highest value in decade).

8. Inflation CPI declined 0.1% in July, of which food prices – 0.9%;
Inflation, yoy % change
CPI declined 0.1% in July, of which food prices – 0.9%;
12-m CPI growth accelerated to 7.9% as of July, compared with 6.9% as of June, and with peak 60.9% in April 2015;
PPI increased 4.3% in July. It was due to sharp prices growth in Electricity, gas, steam and air-conditioning supply – 16.4%. Prices in manufacturing grew 1.0%, in mining industries – declined 4.0%;
12-m PPI accelerated to 18.3%, compared with 15.7% as of June and 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 June CA surplus was USD 241 m, compared with USD 347 m in June 2015;
CA deficit in 1H’2016 was USD 184 m, or 0.5% of GDP. It broadly coincided with deficit USD 114 m (0.3% of GDP) in 1H’2015;
Annual (July 2015 – June 2016) CA deficit was USD 246 m, or 0.3% of GDP. It was USD 139 m, or 0.2% of GDP, month ago.
Trade in goods, 12-m sliding curve, USD bn
In June 2016 to June 2015 export of goods declined 8.3% (to USD 2.7 bn). Agriculture goods export increased 7.1%. Other major export components continued to decline;
In June 2016 to June 2015 import of goods declined 2.4%, to USD 2.9 bn. Decline of import volumes was due to fall of energy import (-43.4%). Non-energy import grew 14.0%;
The largest trade partner of Ukraine in 1H’2016 was EU. EU share in external goods turnover was 36.1%. Share of Russia was 10.3%.

10. Terms of trade index (prices)
In June index value fell from to 102.5, but remained above 100. Index values in May-June are the highest since April Value above 100 reflects positive terms of trade. High index value was due to faster decline (compared with the same month of the previous year) of import prices (index value 94.5), than export prices (96.8).
Terms of trade index (physical volumes) In June index value fell sharply to 91.5 from month ago. Index value below 100 means negative terms of trade. Negative changes were due to simultaneous decline (compared with the same month of the previous year) of physical export volumes (index value 96.2) and growth of physical import volumes (index value 105.1).

11. Foreign direct investments
Net FDI , USD m
Net FDI in June 2016 increased to USD 190 m;
Net FDI in 1H’2016 were USD 2.0 bn, compared with USD 1.3 bn in 1H’2015. Increase was ensured mostly by conversion 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
International Reserves, months of import coverage
Gross international reserves (GIR) of NBU rose to USD 14.1 bn as of 1 Aug 2016, compared with USD 14.0 bn as of 1 Jul 2016;
The main source of GIR increase was NBU interventions – NBU net purchases of currency were USD 258 m in July;
GIR are equal to 3.6 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;
Net international reserves (NIR) of NBU rose to USD 3.4 bn as of 1 Aug 2016, compared with USD 3.2 bn as of 1 Jul 2016.
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 1H’2016 deficit was UAH 11.3 bn, compared with surplus UAH 12.3 bn year ago;
Deficit in June was UAH 7.5 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 1H’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 25 of August was (hryvnia depreciated 0.6%, compared with July 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-Aug (as of Aug 25) hryvnia appreciated 5.7%.
NBU discount rate
On Jul 28 NBU cut discount rate to 15.5% due to slowing CPI. Last change of discount rate (cut from 18.0% to 16.5%) was in June 2016;
NBU intends to continue gradual monetary policy easing if inflation risks continue to diminish;
Interest rate on overnight liquidity providing transactions cut from 18.5% to 17.5% (discount rate + 2%);
Interest rate on overnight certificates of deposit cut from 14.5% to 13.5% (discount rate – 2%);
Next NBU meeting on interest rates will be on Sep 15.

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 July money supply grew:
M0 increased UAH 6.6 bn, or 2.3%, to UAH bn;
Monetary base increased UAH 2.0 bn, or 0.6%, to UAH bn.
Annual (August 2015 – July 2016) growth of monetary base was UAH 22.3 bn, or 6.7%. At the same period, M0 increased UAH 9.6 bn, or 3.4%.

17. Insolvent Banks (as of 25 Aug 2016)
Number of banks classified insolvent
82 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;
4 banks are managed by provisional administrations;
75 banks are under liquidation procedures.
16 banks have been recognized insolvent or decided to leave the market since the start of the year;
One bank (Derzhzembank) has been recognized insolvent since 25 Jul 2016 (previous report date).
101 banks continue to work in normal mode.

18. Households deposits, bn
In July hryvnia deposits declined 0.2%, to UAH bn. Growth since the start of the year was 2.4%;
In July FX deposits portfolio was unchanged. Decline since the start of the year was 0.5%.
Corporate deposits, bn
In July hryvnia deposits increased 1.4%, to UAH bn. Deposit portfolio in Jan-Jul 2016 grew 4.9%;
In July FX deposits increased 0.1%, to USD 5.2 bn. Growth since the start of the year was 13.7%.

19. Credits Households credits, bn
FX credit portfolio in July declined 2.6%, to USD 3.4 bn. Decline since the start of the year was 12.7%, annual decline – 27.2%;
Volume of FX credits declined 87%, compared with USD 26.8 bn as of 1 Oct 2008 (historical maximum level);
UAH credit portfolio declined UAH 1.8 bn (or 2.3%), to UAH 73.6 bn in July. UAH credit portfolio decline since the start of the year was 5.1%, annual decline – 25.2%.
Corporate credits, bn
In July FX credit portfolio declined USD 0.1 bn (or 0.3%), to USD 18.0 bn. Decline since the start of the year was 5.0%, annual decline %;
In July UAH credit portfolio increased UAH 5.6 bn (or 1.6%), to UAH bn. It is more than increase since the start of the year – UAH 1.6 bn, or 0.5%. Annual decline of UAH credit portfolio - 8.3%.