Macroeconomic review (December 2011)
The CPI declined by 1.6% in the third quarter, which is attributable to a decrease in prices for raw foods (contribution made up "minus" 2.8 p. p.), mainly owing to a bumper crop of grains and vegetables. The contribution of core inflation has remained stable in the last two years, standing at 1.2 p. p. On an annualized basis, inflation fell sharply from 11.9% in the second quarter to 5.9% in the third quarter owing to the high comparison base.
Overall, the demand-side factors continue to have a moderate impact on inflationary developments – real GDP was somewhat below its estimated potential level. Inflationary expectations decreased to 13.6% in the third quarter (versus 14.5% in the second quarter), mainly owing to a decline in inflation.
In the third quarter of 2011, GDP growth accelerated (to 6.6% year-on-year from 3.8% in the second quarter, excluding the seasonal factor – by 2.2%), mainly owing to a bumper crop of grains (+17% versus the previous year). The investment activity has continued to increase, with growth rates of gross investment in fixed assets having accelerated to 10% year-on-year (8.6% in the second quarter of 2011). The year-on-year growth in the volume of construction works stood at 9%.
Owing to the high domestic investment demand, there was an improvement in the industry performance indicators – the industrial production growth year-on-year accelerated from 7.6% in the second quarter of 2011 to 8.3% in the third quarter of 2011. Against a backdrop of the low comparison base of the previous year, the growth in metallurgy industry and machine building accelerated to 14.7% and 18% year-on-year (versus 8.3% and 16.1% recorded in the second quarter of 2011).
The revenues of the Consolidated Budget grew at a faster pace than expenditures (by 26% and 9% respectively). Simultaneously, against the backdrop of a tight fiscal policy, which was aimed at curtailing expenditures, the Consolidated Budget showed a surplus of UAH 8.6 billion. As a result, the fiscal conditions were moderately rigid.
The deposit base of banks remained unstable due to a reduction in the national currency deposits and an increase in the foreign currency deposits. The lending activity remained low due to considerable risks in the real sector, a shortage of solvent borrowers and the possibility to obtain a less risky profit by performing transactions in T-bills.
In the third quarter of 2011, the foreign exchange earnings from non-residents and remittances in their favour exceeded the levels recorded in the previous quarter and in the corresponding quarter of the previous year. In spite of this, the supply and demand volumes in the interbank market were formed at the expense of the external funds and own funds of banks. It was facilitated by the certain market liberalization and introduction of an instrument to hedge against foreign exchange risks in June. The policy pursued by the NBU was aimed at maintaining stability in the foreign exchange market and preventing considerable fluctuations of the UAH/USD exchange rate.
In contrast to the previous two quarters of 2011, the Balance of Payments showed a deficit of USD 1.7 billion in the third quarter of 2011, which resulted from the fact that the financial account recorded a decline in the capital inflow, whereas the current account deficit continued to grow.
The key factor behind an increase in the current account deficit (which reached USD 2.7 billion) was heightened investment demand (mainly from the Government, which had increased its capital expenditures on account of preparation for the Euro-2012.
The financial account surplus shrank to USD 1 billion, which was triggered by an increase in the cash foreign currency outside the banking sector and a reduction in the external liabilities of banks. On the other hand, an inflow of direct foreign investments remained high (USD 2.1 billion).
Forecasting the economic development of Ukraine for 2012 has become complicated due to the tense situation in Europe, uncertainty over the price for the imported gas and the budget structure related to it. Under the current monetary policy framework and the absence of considerable external shocks, according to estimates made by the Department, consumer price inflation will stand at around 7% in 2012; economic growth is expected to stand at 3 – 4%. In 2013, provided that the global economy stabilizes, consumer price inflation is expected to keep falling (to the level of 6%) and the pace of economic growth will reach the potential level (4 – 5%).
The full wording of the macroeconomic review (in Ukrainian) has been posted on the official website of the National Bank of Ukraine at: