Ukraines current account narrows in December

Ukraine’s monthly current account (C/A) deficit narrowed to USD 1.2 bln in December (vs. USD 1.5 bln in November), bringing the 2011 gap to USD 9.3 bln (5.5% of GDP), according to preliminary data from the National Bank of Ukraine yesterday. The monthly financial account balance continued to improve from USD 0.6 bln in November to USD 1.1 bln in December  thanks to growing net borrowings by the corporate sector (USD 1.6 bln) and 5x mom growth in net FDI. The full-year financial account surplus totaled USD 6.8 bln or 4.1% of GDP, down from USD 8.0 bln in 2010.

Svetlana Rekrut: The financial account balance was unexpectedly strong in December (FDI and debt capital inflows to the private sector being the key contributors) with the surplus virtually fully covering the current account shortfall. Private sector borrowings remained high for the second consecutive month, implying external debt rollover is manageable even though capital markets remain tough. The considerable decline in net FX cash outflows from the banking sector is another positive development in December, which we attribute to seasonal factors and weakening population expectations of hryvnia depreciation. On the current account side, the merchandise trade deficit was the lowest since September, benefiting from robust agricultural exports and decelerating energy imports. We expect the C/A shortfall to widen marginally in relation to GDP in 2012, while external financing needs will likely reach 3.0% of GDP (vs.1.5% in 2010) on weaker financial inflows.