Pivdenny Bank macroeconomic review: October results

04.11.2018

Analysts at Pivdenny Bank prepared a brief overview of the main trends in the Ukrainian economy in October 2018:

  • In October, the draft budget for 2018 was approved in the first reading and a decision was made to increase gas tariffs for the population by 23.5% from November 1, which allowed Ukraine to advance in negotiations with the IMF, namely, to reach an agreement on the new Stand- By totaling $ 3.9 billion. The program should be approved by the IMF management and the board of directors of the fund, which will most likely happen after the final adoption of the state budget that meets the IMF requirements.
    Taking advantage of the positive background, Ukraine immediately entered the foreign borrowing market and raised $ 2 billion: 5-year Eurobonds of $ 0.75 billion and 10-year bonds of $ 1.25 billion. Amid worsening external conditions (trade wars, increase in the Fed rate, etc.) securities rates were quite high (8.994% and 9.750%). Nevertheless, a successful placement made it possible to strengthen the financial stability of Ukraine and reduce risks.
  • Despite continued high inflationary pressures and a worsening inflation forecast at the end of 2018 (from 8.9% to 10.1% with a target of 6% +/- 2 pp), the regulator believes that monetary conditions are quite stringent for achieving the inflation target in the medium term, and kept the discount rate at 18%.
    In September, consumer prices rose by 1.9% compared with August, but due to the high comparison base (+2% y / y in September 2017), the annual growth rate of prices slowed slightly - from 9% y / y to 8.9 % g / g. Due to the seasonal factor, clothing and education rose in price in September, and rising world oil prices put pressure on the cost of fuel and oils.
  • In September, industrial production showed a decline of 1.3% compared to September last year, while in the previous month the decline was 0.5% y / y. It should be noted that this result was unexpected for analysts who expected growth against the background of a low comparison base (+0.5% y / y in September 2017) - the Reuters consensus forecast was +1.5% y / y in September.
  • Retail trade growth slowed to 6.9% YoY in September compared with 7.5% YoY in August. Most likely, this dynamics is associated with worsening devaluation expectations amid rising volatility of the exchange rate, despite the fact that on the whole the consumer sentiment index grew in September due to improved economic expectations after the arrival of the IMF mission.
  • The construction products index fell by 1% y / y in September - almost the same as in the previous month (1.1% y / y in August). Due to the high comparison base, rising cost and insufficient support from the demand side, the decline in housing construction is deepening. Meanwhile, the construction of engineering structures, on the contrary, is growing, and even at an accelerating pace, which indicates a high investment demand, despite the increase in credit resources due to tightening monetary policy in September and a decrease in the liquidity of the hryvnia in the system.
  • In January-September, freight turnover decreased by 2.6% you (against 2.4% you in January-August). The main reason for the decline is still the reduction in rail transport due to lower physical volumes of grain exports.
  • Due to the deterioration in export dynamics and large interest payments on Eurobonds, the current account deficit widened to $ 1.7 billion in September (from $ 0.6 billion in August). The inflow of $ 1.1 billion in the financial account did not cover the current account deficit, and the balance of payments was reduced with a deficit of $ 0.6 billion. As a result, foreign exchange reserves decreased to $ 16.6 billion (from $ 17.2 billion in previous month), which corresponds to 2.8 months future imports and is the lowest since last April.

Detailed macroeconomic reports can be found here.