Ukraine trade deficit surges 6x in January, bringing C/A to deficit

Ukraine’s trade deficit amounted to USD 373 mln in
January, surging 6 times from USD 62 mln a year ago and following a 29.5% yoy rise
in December, the NBU reported on Feb. 28. Import growth of 26.7% yoy outpaced
export growth of 19.0% yoy, turning the current account (C/A) to a deficit of
USD 61 mln compared to a surplus of USD 131 mln a year ago. Positive balances
in primary income (USD 4 mln) and secondary income (USD 308 mln) was not enough
to compensate the trade deficit.

The growth in goods exports accelerated to 22.4% yoy
from 18.7% yoy in December, led by metals, mineral products (including ores),
and machinery. The boost in goods imports to 30.5% yoy from 23.5% yoy in
December was mostly due to non-energy products, including chemicals, machinery,
and foods.

The financial and capital accounts turned to a USD 388
mln deficit in January from a surplus of USD 713 mln in the prior month (and
deficit of USD 335 mln a year ago). The repayments on long-term loans of the
non-banking sector (USD 230 mln outflow from USD 266 mln inflow in December)
and trade credits (USD 204 mln outflow from USD 91 mln outflow in December)
outweighed the FDI inflow of USD 80 mln (USD 233 mln in December) and portfolio
investment of USD 111 mln (USD 22 mln in December).

A short depreciation of the local currency by 3.2% m/m
during January fostered the sale of cash currency by individuals. For the first
time since September, the monthly sale of cash currency by individuals exceeded
currency purchases, resulting in currency inflow of USD 189 mln.

In January, the deficit of combined balance (C/A plus
capital and financial accounts) more than doubled to USD 449 mln from USD 202
mln a year ago (a USD 1 mln surplus in December). The deficit led to a decline
in gross international reserves by 2.0% m/m
to USD 18.6 bln (3.5 months of future imports).

Evgeniya Akhtyrko: The next three months should reveal if January’s spike in imports of
non-energy goods turns into a trend. Amid the country’s weak export potential
and sketchy currency inflow under the financial account, fast growing imports
will result in a shakier BoP and put more devaluation pressure on the Ukrainian
currency. So far, January’s external accounts alone do not provide us with
enough grounds to adjust our projections for the C/A deficit at USD 4.2 bln, or
3.6% of GDP in 2018.