Russian offensive gains remain marginal despite record-high tempo of assaults

Ukraine’s headline current account (C/A) ran a deficit of $1.6bn in May, widening slightly from $1.5bn in April, while the financial and capital account (F/A) balance, including IMF funds, slid $1.7bn into deficit following a $0.1bn surplus in April. Separately, the NBU revised its 4M24 balance of payments data, raising the estimate of cumulative reinvested earnings by $1.0bn to $1.4bn. Thus, the 4M24 C/A deficit was downgraded by $1.0bn to $4.7bn and F/A surplus increased accordingly, to $6.5bn, on account of higher FDI ($2.1bn).

The IMF Board approved the fourth review of its $15.6bn 4-year EFF program for Ukraine on Jun. 28, authorizing the disbursement of a fifth budget support loan tranche of $2.2bn, and published revised macroeconomic forecasts and debt sustainability analysis (DSA).

Ukraine has received a EUR 1.9bn ($2.0bn) loan from the EU, part of the bloc’s EUR 50bn 4-year Ukraine Facility program. Further Ukraine Facility tranches are expected to be disbursed on quarterly basis subject to Ukraine’s compliance with the attached conditionality.

The State Statistic Service (SSS) reported industrial production (IP) growth of 11% y-o-y in 1Q24, up from -17% y-o-y in 1Q23 and +6.8% in 2023 (the latter revised from a provisional 5.9%). Growth in construction jumped to 40% y-o-y last quarter from -10% y-o-y in 1Q23 and +25% in 2023 (revised from 23%). Cargo transportation rose by 20% y-o-y in 1Q24, recovering from -29% in 1Q23 and -2.0% in 2023, while passenger transportation expanded by 24% y-o-y following a 16% drop in 1Q23 and 27% growth in 2023.

Naftogaz reported 1Q24 sales of $2.2bn, up 2.9% q-o-q and 12% y-o-y, EBITDA of $909m, up 25% q-o-q and up from a tiny $49m in 1Q23, and net income of $286m, up 34% q-o-q and above a $41m loss in 1Q23. The EBITDA and net margins rose by 7pp q-o-q and 38pp y-o-y to 41% and 3pp q-o-q and 15pp y-o-y to 9%, respectively.

Ukraine’s direct and guaranteed public inched down by 0.3% or $0.5bn m-o-m in May, to $151bn, remaining up 3.9% YTD.

According to a Jun. 6-12 nationwide poll by Razumkov Center, an independent think tank, 80% of respondents said they remained confident about Ukraine’s eventual victory in the war against Russia, with 12% not believing in a victorious outcome.

According to the State Statistical Service, 1Q24 real GDP provisionally rose by 6.5% y-o-y and 1.2% q-o-q in s/a non-annualized terms on top of 4.7% y-o-y growth in 4Q23.

The Ministry of Finance placed UAH 6.3bn ($156m) of hryvnia-denominated bonds and $200m of USD-denominated paper at a primary auction yesterday.

Minutes from the latest NBU Monetary Policy Committee (MPC) meeting, which preceded the NBU Board’s key rate meeting on Jun. 13, showed that 9 out of 11 committee members favored a 50bp key rate cut, to 13.0%, in line with the central bank’s forward guidance. One participant called for a 100bp cut and another one argued for a flat key rate. The MPC also discussed potential changes to the operational design of monetary policy, particularly narrowing the spread between the key rate and the rate on 3-month Certificates of Deposit (CDs) by 25-200bp (from current 300bp), agreeing to continue discussions later.

Naftogaz reported 2023 sales of $6.7bn (-5.9% y-o-y), EBITDA of $1.9bn (+4.3x), and net income of $632m, up from a net loss of $2.4bn in 2022. The EBITDA and net margins recovered by 22pp and 44pp y-o-y to 28% and 9%.

The EU made on Friday the final procedural step towards officially starting accession negotiations with Ukraine. The EU Council approved the so called negotiating framework and scheduled, for Jun. 25, an inaugural intergovernmental conference with Ukraine, with the latter marking a ceremonial start to accession talks. The same decision was approved for Moldova.

Starting on Jun. 19, Ukrainian exports of oats to the EU became subject to tariff quotas set by the EU-Ukraine free trade agreement after exceeding the respective reference duty-free volume introduced by a recently revised EU-Ukraine duty-free regime and thus triggering the EU safeguard mechanism. Ukrainian exports of sugar and eggs to the EU market thus far in 2024 have also come close to their respective reference duty-free volumes, risking similar safeguard measures being triggered.

Russian forces sharply intensify ground assaults but make only incremental gains, mostly in Donetsk region; other front lines stable

The Ukrainian Economy Ministry estimated real GDP growth in May at 3.7% y-o-y, marking a slowdown from 4.3% y-o-y in April and 4.6% in March and bringing the 5M24 tally to 4.3% y-o-y, only marginally lower than 4.4% in 4M24 and 4.5% y-o-y in 1Q24 (all estimates are +/-1pp).