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Ukraine Country Report - May, 2018

Ukraine Country Report - May, 2018

The NBU has also kept its economic growth projections for 2018-2020. According to the central bank, the Ukrainian economy will increase by 3.4% y/y in 2018.

According to official data, Ukraine’s real GDP rose 2.5% y/y in 2017. GDP grew 0.1% quarter-on-quarter in 1Q17, 0.8% q/q in 2Q17, 0.5% q/q in 3Q17 and 0.5% q/q in 4Q17.

The International Monetary Fund (IMF) has retained its forecast for Ukraine's economic growth in 2018 at 3.2% year-on-year, and reviewed downwards the 2019 forecast to 3.3% y/y from 4% y/y, the multinational lender said in its World Economic Outlook published on April 17.

According to official data, Ukraine’s real GDP rose 2.5% y/y in 2017. The economic growth was fostered by the expansion of domestic consumer demand and high investment activity. The National Bank of Ukraine (NBU) forecasts real GDP growth to accelerate further to 3.4% y/y in 2018.

"Private consumption will remain the main driver of economic growth. First, real wages will continue increasing at a fast pace, spurred by intensive labour migration," the regulator said in a statement on April 12. "Second, the fiscal policy is easing on the back of higher social standards and other factors. Additionally, companies will continue to invest actively."

Real GDP growth is projected to slow to 2.9% y/y in 2019-2020, according to the NBU's expectations. "This will be due to fiscal easing effects wearing off and the central bank conducting a reasonably tight monetary policy to bring inflation back to the target," the central bank added. "However, economic growth could be higher if more decisive action is taken to implement structural reforms."

The IMF has also reviewed downwards Ukraine's consumer price growth forecast for late 2018 by 2 percentage points to 9%. By late 2019, the IMF expects inflation in Ukraine at the level of 6.5%.

In March, headline inflation in Ukraine continued to slow and stood at 13.2% year-on-year. At the same time, inflation exceeded the NBU’s targets, the regulator underlined. Core inflation was also elevated, at 9.4% y/y.

The NBU believes that "headline inflation will decline and return to the regulator's target range in mid-2019" to make 5.8% by the end of the year. In 2018, inflation will decelerate gradually to 8.9% in December, albeit remaining above the target. In 2020, inflation will slow to 5.0%, thus hitting the central point of the target range (5.0% ± 1 percentage point).

"On the one hand, the hryvnia appreciation in the first quarter will curb price growth, primarily for non-food goods, and will thus contribute to core inflation declining faster than forecasted in January," the regulator added.

Fights with Gazprom over gas transit are heating up as German chancellor Angela Merkel has stated that Nord Stream II cannot be realized without an agreement on Ukraine’s future as a transit state. Naftogaz’s commercial director Yuri Vitrienko has signaled that Kyiv is discussing raising transit tariffs for 2018-2019 in a bid to raise revenues before transit volumes are lost.

Money is tight. The National Bank is planning to raise $4.5bn via Eurobond issuances for 2018-2019, of greater importance since the IMF has pegged the fifth tranche of its assistance program to pension reforms, gas tariff reforms, and reining in next year’s budget deficit to 2.5% of GDP. The World Bank is warning that growth could fall below 2% for 2018 and 2019 if reforms aren’t carried out.

New estimates suggest it would cost Kyiv over $50bn to reintegrate the Donbas. As always, payments for energy imports figure into Ukraine’s ability to use its reserves to finance such an endeavour in the future. Talks are now being held to extend the Chernobyl nuclear plant’s operating lifetime past 2020. For 2017, 80% of Ukraine’s anthracite coal needs came from Russia via the U.K. and Switzerland. UAH55bn hryvnia are supposed to be committed to projects building 2.5 gigawatts of flexible capacity power plants using a mix of gas with renewable sources – namely solar and wind – as a means of reducing import dependencies. Budgets and lack of credit may interrupt that plan.

And politically President Petro Poroshenko’s popularity is crashing while that of opposition leader Yulia Tymoshenko is climbing. The president could lose next year’s presidential race.


1.0 Executive summary
2.0 Politics
2.1 Ukraine e-declaration system applied to NGOs
2.2 Merkel links Nord Stream II to Ukraine progress
2.3 Poroshenko “swamped” with corruption allegations in one week
2.4 Politics - misc
2.5 Polls & Sociology
3.0 Macro Economy
3.1 Macroeconomic overview
3.2 Macro outlook
4.0 Real Economy
4.1 Industrial production
4.2 Inflation
4.2.1 CPI dynamics
4.3 Fixed investment
4.4 Labour and income
4.4.1 Labour market, unemployment dynamics
4.4.2 Nominal wages dynamics
4.4.3 Corporate and retail sector dynamics
5.0 External Sector & Trade
5.1 External sector overview
5.1.1 Import/export dynamics
5.1.2 Current account
5.1.3 Gross international reserves
5.3 FDI
6.0 Public Sector
6.1 Budget
6.1.1 Budget dynamics - funding & privatization
6.2 Debt
7.0 FX
8.0 Financial & capital markets
8.1 Bank sector overview
8.1.1 Banks specific issues
8.1.2 Bank news
8.2 Central Bank policy rate
8.5 Fixed income
8.5.1 Fixed income - bond news
9.0 Industry & Sectors
9.1.1 Oil & gas sector news
9.1.6 Agriculture sector news
9.1.7 TMT sector news
9.1.9 Tourism sector news
9.1.10 Utilities sector news
9.2 Major corporate news
9.2.1 Oil & gas corporate news
9.2.3 Aviation corporate news
9.2.5 Retail corporate news
9.2.6 Agriculture corporate news
9.2.7 TMT corporate news
9.2.8 Telecoms corporate news
9.2.10 Utilities corporate news
9.2.11 Metallurgy & mining corporate news
9.2.12 Transport corporate news
9.2.13 Other sector corporate news

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