Ukraine Markets Daily (December 20, 2016)

Market news

  • Ukraine’s GDP grew by 2% y/y in 3Q2016
  • EU and EIB announces EUR 600 mn set of loans to Ukraine

Market comment

The UX index was up by 0.1% Yesterday. The PFTS index increased by 0.1% (in UAH term). The WIG-Ukraine index decreased by 1.4%. On the interbank exchange market, the USD/UAH remained nearly unchanged at UAH 26.26 (mid price), according to Bloomberg. The official exchange rate reported by the NBU was UAH 26.40.


Ukraine’s GDP grew by 2% y/y in 3Q2016

Ukraine's GDP grew by 2% y/y in 3Q2016, which is 0.2 pps higher than the previously made assessment, according to an update of the State Statistics Service. Compared with 2Q2016, GDP increased by 0.5% q/q (seasonally adjusted), and amounted to UAH 664.7 bn (c. USD 25.2 bn). GDP per capita stood at UAH 15568 (USD 613), according to the report. The construction sector (17.5% y/y), domestic trade (3.8% y/y), and agriculture (1.1% y/y) above all determined the GDP expansion. In the meantime, mining (-4.1% y/y) and finances (-6.3% y/y), together with social services (education and medicare) restrained economic growth. Final consumption increased by 5.1% y/y, driven by a 4.9% y/y expansion in household consumption; public consumption grew by 3% y/y. Capital accumulation, mostly invested in fixed assets (+24.8% y/y), grew by 32.8% y/y. In the meantime trade deficit deepened to USD 1.9 bn in 3Q2016, up from about USD 380 mn in the corresponding period of the previous year.

Our view:

The news is POSITIVE, showing economic growth to continue accelerating, nurtured by strengthening domestic consumption. However, the external environment has not been supportive to economic growth, exacerbating the trade deficit on background of weak performances in the country’s traditional exporting industries. In the meantime, the conflict in Eastern Ukraine continues restraining growth in such economic sectors as mining and engineering. We see the economic momentum to continue building up, thanks to the Government’s efforts at raising the leaving standards in the country, and expanding investment activities. The quarterly GDP result still allows contemplating a GDP growth of up to 1.3% in 2016, in our view.

EU and EIB announced EUR 600 mn set of loans to Ukraine

On December 19, 2016, the European Investment Bank (EIB) and the European Commission announced the latest set of loans in the volume of EUR 600 mn, as part of the European Union's commitment to Ukraine made in March 2014, the European Bank announced. This set of loans will allow the EIB to reach its EUR 3 bn commitment under the European EUR 11 bn support package for Ukraine for the period of 2014-2016, Federica Mogherini, EU High Representative for Foreign Affairs and Security Policy, told a joint briefing with Ukraine’s First Prime Minister Stepan Kubiv in Brussels on December 19, 2016. The loans, which are partly underpinned by EU grants, will provide funding for energy efficiency, higher education, sustainable transport, private sector and business support, according to EIB. EUR 120 mn is dedicated at improving energy efficiency at 147 buildings of seven Ukrainian universities located in Kharkiv, Kyiv, Lviv, Poltava, Chernihiv, Sumy, and Vinnitsa, according to the press service of the Ukrainian Finance Ministry. A EUR 150 mn railway program should help upgrading Ukraine’s railway infrastructure through the electrification and modernization of some 253 km of railway lines in the Southern region of Ukraine, allowing eliminating existing bottlenecks and improve connections towards the Ukrainian ports on the Black Sea, the EIB says. EUR 71 mn is extended to the agriculture company Nibulon for creating a more sustainable, modern and expanded system for grain storage and river transportation, according to the European Bank. On December, 19, 2016, Mr. Oleksandr Shchur, Member of the Board of the Joint Stock Company The State Export-Import Bank of Ukraine (JSC Ukreximbank), and Mr. Vazil Hudák, Vice-President of the European Investment Bank (the EIB), signed the EUR 260 mn Finance Contract aimed at supporting the private sector within the framework of the EU-Ukraine DCFTA, according to a statement of the Ukrainian bank. The long-term loan funds are provided to finance the development of small and medium sized companies and MidCaps in Ukraine, strengthen the potential of the Ukrainian entities involved in implementation of international trade, energy efficiency, environment protection and other top-priority projects. “Europe is demonstrating today that it keeps its promises to Ukraine. We are well on the way now to ratifying the Association Agreement, to delivering visa liberalization, and we keep our promises too on financial assistance, in which the EIB plays an important role”, Commissioner Johannes Hahn, in charge of EU Neighbourhood Policy, said.

Our view:

The news is POSITIVE, demonstrating consistency in the execution of the financial commitments of the wider international community to Ukraine under the IMF-led program package, associated with the Fund’s Extended Financing Facility. We note that the major international bilateral and multilateral financial donors of the country have reiterated their support to Ukraine’s reforms in connection with the recent Government’s decision to nationalize the largest private bank of the country “Privatbank”.