Ukraine Macroeconomic Situation - July 2007, From Sigma Bleyzer

SUMMARY

[1] The Ukrainian economy has continued to show robust growth, demonstrating a solid immunity to political instability.

[2] For January-May, real GDP grew by 7.9% yoy. Due to the droughty weather, the grain harvest is expected to be notably lower than previously expected. However, poor agricultural performance is unlikely to have a substantial effect on total GDP growth in 2007.

[3] For the first five months of the year, the state budget ran an unusually high surplus for this period due to higher than expected budget revenues and under-execution of budget expenditures.

[4] Despite a high fiscal surplus so far, the government resumed issuance of external and domestic debt in June to secure enough funds for the planned budget deficit.

[5] The consumer price index keeps reporting double-digit growth; however, the government forecast of 7.5% year-end inflation may still be realistic.

[6] Ukraine continued to demonstrate very strong export performance this year; however, buoyant import growth resulted in further widening of the merchandise trade deficit. A modest service trade surplus and a larger deficit in the income account caused the current account deficit to widen by almost 70% yoy in 1Q 2007.

[7] Robust capital inflow covered not only the CA gap, but also helped replenish the gross international reserves of the National Bank of Ukraine.

[8] In mid-June, the EU and Ukraine officially started negotiations on a new enhanced agreement.

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