Ukraine goods trade deficit widens to USD 961 mln in 1Q16

Ukraine’s goods trade balance in 1Q16 worsened to a USD 961 mln deficit compared to a USD 99 mln deficit in the same year-ago period, the State Statistics Service reported on May 16. Exports slumped 18.5% yoy, while imports fell only 9.3% yoy. A 37.8% yoy drop in mineral products exports, as well as a 33.7% yoy fall in metals, were the main drag on commodity exports. Imports fell only due to a 51.8% yoy plunge in the energy bill. At the same time, non-energy imports recovered (12.0% yoy growth in 1Q16) with vehicles (69.1% yoy), machinery (18.1% yoy) and chemicals (17.2% yoy) driving this growth.

In 1Q16, exports to CIS countries kept falling dramatically (-37.3% yoy). At the same time, the decline in exports to the EU slowed to the single digits (-2.7% yoy).Import of goods from CIS fell 32.8% yoy, while imports from the EU fell 1.2% yoy in 1Q16.

Alexander Paraschiy: The trade deficit continued to swell quickly regardless of stronger metal and iron ore prices in the first quarter. What’s more, the deficit worsened amid plunging energy imports as Ukraine imported 2.7 bcm of natural gas in 1Q16 compared to 4.5 bcm a year ago. So the ongoing swelling is largely due to recovering non-energy imports consumption on the back of renewed economic stability. We expect the current pattern in the commodities trade to be preserved in the nearest future, with a downside risk for exports amid easing resource prices. 

Against this backdrop, our initial estimate of a USD 2.1 bln trade deficit in 2016 was overly optimistic. We already made half of that deficit in 1Q16 alone and the gap might grow even faster. Thus, we are revising our trade deficit forecast to USD 3.5 bln (according to UkrStat methodology), with downside risks still present.