Ukraine Country Report Aug18 - August, 2018

August 1, 2018

The Ukraine economy has picked up a little momentum and growth as well as incomes are starting to rise more strongly. At the same time industrial production is picking up while non-performing loans (NLPs) in the banking sector are coming down. Even the collapsed commercial bank Privatbank is back in profit. However, the recovery remains under par given the depth of the previous crash in 2015 and the almost total lack of investment is holding progress back.

Ukraine's industrial output growth slowed to 2.2% year-on-year in June following a 2.5% y/y growth in May amid a continuing decline in mining and slower growth in manufacturing and utilities, the Ukrstat state statistics service reported on July 23.

Ukraine’s inflation slowed in June on the back of falling food prices and dropped into single figures for the first time since October 2016, the State Statistics Service reported on July 9.

Ukraine’s consumer prices remained flat m/m in June for the second month in a row, the State Statistics Service reported. Annual inflation slowed down to 9.9% y/y from 11.7% y/y in May. Like in the previous month, the disinflation was caused by a drop in prices for food and clothing.

There was better news from incomes, with real wages in Ukraine up 14.1% y/y in May, accelerating from 12.5% y/y growth in April, the State Statistics Service reported on June 27. The average monthly nominal wage increased to UAH8,725 a month ($333) from UAH8,480 in May, which is 2.9% m/m growth in real terms. However, the exodus to find better paid work abroad continues -- Ukrainians earn up to four-times more working in Poland than they do at home. But this comes with the plus of $10bn of remittances a year in cash sent home: more than the country gets from the IMF.

Less good was Ukraine's current account deficit widening to $415mn in January-May vs $308mn during the same period last year, according to the National Bank of Ukraine (NBU). despite growing agricultural exports, this is not generating enough money to cover the cost of imports that are growing now incomes are rising again.

The NBU expects a moderate acceleration in the growth of the Ukrainian economy and stable growth in investment activity in the second quarter of 2018. Further increase in consumer demand will be facilitated by increased income of the population (including through military pensions, wages and remittances). NBU’s press service says. In the first quarter of 2018 , the economy accelerated growth to 3.1% on an annual basis. Compared to the previous quarter, GDP growth was 0.9% seasonally adjusted. Actual growth rates of real GDP in the first quarter of 2018 were higher than the NBU’s expectation of 2.3% in the Inflation Report for April 2018.

The National Bank of Ukraine (NBU) expects the country’s economic growth rate to reach 3-3.5% this year, the Director of its Financial Stability Department Vitaly Vavrishchuk has announced.

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