Pivdenny Bank macroeconomic review: results in February

Pivdenny Bank analysts have prepared a brief overview of the main trends in the Ukrainian economy for February 2019:

GDP

According to a preliminary estimate by Ukrstat, GDP growth in the fourth quarter of 2019 decelerated to +1.5 % (from + 4.1 % in the previous quarter). According to our calculations, at such a rate of growth, the Ukrainian economy grew by +3.2 % in 2019, which is slightly slower than the previous year (+3.3 %).

Inflation

Inflation continues to slow and reached a record low in January of almost 6 years: +3.2 % y/y, which is below the NBU target range. In light of this, the regulator accelerated the monetary easing cycle by reducing its discount rate by 2.5 percentage points – up to 11.00 %.

Real sector

In January, recession continued in the real sector – the production index of basic industries showed a drop of -3.4 % y/y (-2.6 % a month earlier). A warm winter caused a drop in energy demand, while a sharp reduction in gas transit in January led to a drop in freight turnover. The processing industry suffered from a slump in metallurgy amid unfavourable external conditions. As a result, the mining industry has also shown a decline. Only construction and retail sales showed growth, amid high investment and consumer demand.

In January, the current account showed a seasonal surplus, which was slightly lower than in January last year, due to a decrease in gas transit. At the same time, the merchandise trade deficit has narrowed as a result of increased food exports and a decline in energy imports (both due to low world prices and a decrease in volume). The government's placement of Eurobonds helped generate a financial account surplus in January. As a result, the balance of payments was positive and international reserves increased by USD 1 billion to reach USD 26.3 billion, exceeding the level at the end of 2012.

A relatively strong hryvnia, declining imports, as well as drops in a number of industries (including mining) reduced budget revenues and core plan implementation by only 76 % in January. As a result, the spending plan was also not fully implemented (up 85 %), but showed a slight increase compared to January last year. The resulting deficit was financed by external borrowing (placement of Eurobonds).

Government debt

In January, government and government-backed debt fell to USD 83.4 billion (from USD 84.4 billion in December) against the background of the hryvnia devaluation, which led to a decline in domestic debt in dollar terms. In addition, the reduction of domestic debt contributed to the repayment of currency government bonds, which were not refinanced by the issuance of new currency bonds or an increase in the issue of hryvnias (as demand from non-residents fell). At the same time, part of the government debt was refinanced with the issue of Eurobonds totalling EUR 1.25 billion.

Detailed macroeconomic reports can be found at link.