Ukraine’s current account (C/A) was back in a surplus of $446mn in January from a deficit of $344mn the month before, mostly due to a smaller goods trade deficit, the National Bank of Ukraine (NBU) reported on March 3.

January’s was the highest monthly surplus since December 2015. The trade deficit shrank to $247bn, the lowest since September 2017, from $982mn in December as goods exports surged ahead of goods imports.

In particular, goods imports inched up only 1.2% y/y (to $4.0bn) owing to falling imports of mineral products (-9.0% y/y) and chemicals (-9.3%). Machinery imports surged 21.7% y/y.

Goods exports reached $3.7bn, accelerating to 9.1% y/y growth (from 4.2% y/y growth in December). The growth was driven by exports of foods, which surged 22.9% y/y (vs. 17.0% y/y growth in December) and metals, which increased 7.8% y/y (vs. a 7.3% y/y decline in December). Meanwhile, exports fell among mineral products (a 0.4% y/y drop vs. 14.8% y/y growth in December), machinery (a 16.4% y/y fall vs. 8.9% y/y decline in December) and chemicals (a 24.0% y/y plunge vs. 15.4% y/y decline in December).

The January financial account deficit was $509mn (vs. a $2.2bn surplus in December). Net foreign currency outflow under trade credits amounted to $510mn (vs. $745mn net inflow in December). In addition, the net outflow from the banking sector was $171mn (vs. $220mn inflow in December).

At the same time, net inflow of portfolio investment reached $191mn, mostly due to the purchase of local Ukrainian bonds by foreign investors for $200mn. Net foreign direct investment amounted to $168mn.

Due to the outflow under the financial account, January’s balance of payments reached an insignificant deficit of $68mn (vs. a deficit of $449mn in January 2018).

“The current account switching to surplus is typical for January, though the improving trade balance is actually quite shaky. Firstly, the slowing goods imports were mostly caused by a drop in natural gas import volumes, which dropped 20.2% y/y in January-February, according to gas transit operating company Ukrtransgaz,” Evgeniya Akhtyrko of Concorde Capital said in a note.

“Secondly, the current growth of goods exports is being driven by surging agricultural exports after a record-high grain harvest. Therefore, the trade balance will deteriorate as soon as Ukraine inevitably restores gas import volumes and the effect of swelling agricultural exports fades away,” Akhtyrko added.

“On a side note, the plunge in imported gas purchases could be a factor in the hryvnia's current stability. Large gas purchases traditionally boost demand for foreign currency on Ukraine’s ForEx,” said Akhtyrko. “We expect the C/A deficit to enlarge to $5.6bn in 2019 (vs. $4.7bn in 2018) due to the growing trade deficit.”