C/A deficit stays wide in July, still covered with borrowings

Ukraine’s current account deficit amounted to USD 1.3 bln in July, taking the 7M12 shortfall to USD 6.7 bln or 4.1% of 2012E GDP, according to NBU data released last Friday. The merchandise trade deficit stood at a hugely negative USD 1.8 bln in July (and USD 10.8 bln in 7M12 vs. USD 7.8 bln in 7M11) as import growth (+12.9% yoy) substantially outpaced exports (+7.6% yoy). Net inflows of FDI and debt via the financial account stood at USD 2.1 bln in July, but the strong surplus was solely due to USD 2.0 bln raised by the government via Eurobonds. Overall, Ukraine’s external financing gap (combined balances of C/A and financial account) stood at USD 0.3 bln in 7M12 (vs. a surplus of USD 1.9 bln in the same period last year).

Vitaliy Vavryshchuk: July BoP data was a disappointment: the merchandise trade deficit continued to widen, even though imports of energy materials (including imports of natural gas from Russia) was down 6% yoy in 7M12. The key factors to blame for the deficit are weak steel exports (-10.9% yoy in 7M12) and strong growth in imports of consumer goods, driven by still strong domestic demand. With fresh data from July in hand, we now see our 2012E C/A deficit projection of USD 10.9 bln might be optimistic. At the same time, the inflow of new debts and FDI is stronger than we initially projected. All in, we stick to our 2012 projection for Ukraine’s external financing needs of USD 7.0 bln (4.2% of GDP) which is set to be covered by NBU reserves.