Ukraine energy import decline keeps shrinking C/A deficit
5 August 2013
Ukraine’s current account deficit declined 58% yoy to USD 673 mln (vs. USD 1.6 bln a year ago) in June, according to NBU data released on August 2. The main factor was a commodity imports decline (-21.8% yoy) caused by a record-high contraction in energy imports (-56.2% yoy). Exports also decreased (-12.3% yoy), led by drops in machinery (-26.4% yoy), food (-20.5% yoy) and metal products (-6.0% yoy).
The financial and capital accounts balance turned negative in June (to USD -409 mln vs. USD 71 mln a year ago) on the back of a USD 1 bln Eurobonds repayment. Individual cash demand was still subdued with only net USD 11 mln purchased by households. FDI was also modest with only USD 198 mln net capital inflow, which is less than half of the year-ago sum.
Against this backdrop, Ukraine’s external financial balance (the combined balances of the C/A and financial account) reached a USD 1.1 bln deficit. As a result, gross foreign reserves declined USD 1.3 bln in June to USD 23.2 bln, or 2.6 months of imports.
Alexander Paraschiy: A delay in natural gas imports was the main factor in the C/A deficit improving in June. Ukraine imported only 0.9 bcm of gas through the month, which is three times less than a year ago, according to the NBU. This trend outlines a nearly 60% gas imports increase in 2H13 vs. 1H13 that’s needed in order to reach the minimum gas imports of 27 bcm in 2013 declared by the government in its 2013 energy balance report.
On the other hand, non-energy imports have been declining for four months. Though a statistical effect from machinery imports for EURO 2012 was the main reason, evidence of sliding retail trade and slowing private consumption could be signals that the decline is also due to weakening domestic demand.
Though the cooling domestic consumption offers grounds for a downward revision of our C/A deficit forecast, we prefer to keep our current estimate at USD 14.8 bln for 2013 before we see the July data, which we assume will be largely free of the EURO 2012 effect.
