December 22, 2015

This week in focus: Downward GDP revision is not bad news!

UkrStat revised its 3Q 2015 GDP estimate from -7.0% y/y to -7.2% y/y. The data is somewhat above our expectations as weve anticipated a more downbeat revision from the authorities. Coupled with mild weather conditions in 4Q, this makes us fine-tune our 12M 2015 real GDP forecast to -11% (from previous -12%). Views for the next year are left unchanged though and our 2016 GDP forecast is retained at a moderate +1.5%, as growth will be weighed by Ukraines structural constraints, as well as restrictive policies (both fiscal and monetary). On top of that, dry summer, followed by the snowless winter, may lead to a poor harvesting in 1Q 2016, implying further GDP losses next year. 

Currency market: Focus on fiscal side

Interbank USD/UAH has generally hovered between 23.4 and 23.6. Market volatility was indeed low and the market seems to be gradually entering the holiday season, promising no material fluctuations within the next couple of weeks.  Market tranquility may get broken only in case the disagreements between the government and the legislators become deeper. To this end, the IMF has recently issued a statement warning that Ukraines further funding will be inevitably disrupted in case the governments proposals are not supported by the lawmakers. Days afterwards, NBU issued a press release, calling the Parliament to vote for the 2016 budget. We expect an IMF-compliant budget to be adopted already this year. That being said, we anticipate the program discussions to be resumed in mid Jan 2016. 

 Money market: UAH 100bn threshold crossed

Banking liquidity has finally climbed above UAH 100bn. At the same time, correspondent accounts entrenched above UAH 30bn. Against this backdrop, volume of NBU liquidity support remains remarkably low.  Money market rates stay flat. ON is 17/19%, indicative 1 week is around 18/20%, indicative 1M is 20/23%.  NBU sold UAH 45mn of OVDP at the weighted average yield of 19.24%. Bids totalled UAH 149mn and were cut off at the 19.25% yield rate. The regulator has also scrapped the option to include 75% of the UAH-denominated cash in desk into a bank's mandatory provisions. The new regulation is implemented since Jan 10, 2016 and might lead to short-term splash of demand for the UAH.

Global markets: Payments on USD 3bn bond suspended

US Fed raised its interest rate band to 0.25-0.5%. The scale of the lift-off was totally in line with expectations and has not lead to any significant market movements. While further hikes are on the card, lower crude prices will weigh on inflation, implying a slower lift-off going forward.  Ukraine has officially suspended payments under the USD 3bn debt to Russia. The freeze was also imposed on the liabilities of the state-owned Pivdenne design bureau and Ukraines national motorway company Ukravtodor (totaling around USD 0.4bn). Against this backdrop, Russian MinFin has issued a statement saying the country will sue Ukraine. We nevertheless believe that prospects of such legal proceedings (if there will be any) look indeed doubtful.  This or another, the impact of this default on Ukraines finances / economics will be muted, in our view.

For more information: UkrSibbank_221215.pdf