Ukraine C/A deficit widens to USD 0.6 bln in July

Ukraine’s current account (C/A) deficit widened 14.7%
to USD 594 mln in July owing to import growth exceeding exports, the National
Bank of Ukraine (NBU) reported on Aug 30. The C/A deficit was USD 518 mln in
June 2017 (and USD 429 mln in July 2016).

In July, goods and services imports grew 16.5% yoy
while exports improved 11.7% yoy. Goods exports grew 9.9% yoy on the back of
machinery (35.7% yoy) and food (11.0% yoy), while chemicals dropped 17.0% yoy.
Goods imports increased 22.0% yoy backed by energy (55.9% yoy growth),
machinery (28.6% yoy) and chemicals (16.7% yoy).  Non-energy imports
slowed to 14.4% yoy growth from 20.9% yoy in the prior month.

In 7M17, the C/A deficit reached USD 2.16 bln vs. a
USD 1.38 bln deficit a year ago. 

Financial and capital accounts also worsened in July,
narrowing to a USD 309 mln surplus from USD 824 mln in June (USD 539 mln a year
ago). The result was driven by lower net FDI (USD 137 mln vs. USD 638 mln in
June). Individual cash returns to the banking system dropped to USD 364 mln
from USD 553 mln in the prior month.  Trade credits increased to USD 394
mln from USD 274 mln in June.

The general balance (C/A plus capital and financial
accounts) turned into a USD 285 mln deficit in July vs. a USD 306 mln surplus in
June (USD 110 mln surplus a year ago). The deficit shaved off 1% (USD 176 mln)
of gross international reserves through the month.  By the end of July,
reserves fell to USD 17.8 bln, which is 3.6 months of future imports.

Alexander Paraschiy: By July, the
C/A deficit had been expanding in line with our projections owing to weaker
exports prices till June and a steady recovery of demand for imports. The
situation began changing in July as metal and iron ore prices started
recovering. Now there is a big question on how this will impact the trade
balance. 

We expect exports will accelerate in August. However,
imports are also expected to strengthen amid improved revenues. So far, we are
keeping our 2017 C/A deficit projection at USD 4.8 bln (4.6% of GDP).