Ukraine’s financial sector bites the bullet

Ukraine’s economy contracted 1.1% during the first quarter of 2013. The gross domestic product (GDP) in current prices amounted to UAH 301.598bn in Q1. In q/q terms, the GDP grew by 0.6%, which was predetermined by a seasonal factor. GDP per capita amounted to UAH 6,624, down by 0.96% y/y.

The country’s economic growth slowed to 0.2% in 2012 from 5.2% in 2011. After first-quarter GDP data was released, most of the rating agencies and global financial institutions lowered their full-year GDP growth forecast for Ukraine. The GDP is expected within a range of a growth of 1.1% to a contraction of 0.5%.

The World Bank believes that the high fiscal deficit, continuous current account deficit and high external debt remain the main challenges for Ukraine. In addition, the national currency de-facto peg to the dollar and declining foreign reserves also remain a concern for the authorities.

Read more in Intellinews’s comprehensive report, Ukraine’s Financial Sector>>

 

Bad loans an eyesore to an otherwise profitable CEE banking sector

As a whole, the banking sector across the CEE region remains profitable. Interest margins have tightened recently, but are still much higher than in Western Europe. Lending growth has softened and banks have increasingly focused on attracting fundings from domestic sources, increasing competition for deposits. Western European banks, which hold more than two thirds of the CEE banking sector’s assets, have withdrawn significant amounts of parent funding, pressured by heightened capital requirements in their home countries, but are believed to remain committed to the region, which has a strong growth potential. The main weakness of the CEE banking sector is the high level of bad loans and the trend for further worsening of the asset quality in view of the weak economic environment.

Much more in the Intellinews report: CEE Banking Sector Report

 

Ukraine’s food sector growing hungry

The  European Bank for Reconstruction and Development (EBRD) passed a negative economic growth outlook for kraine for both 2012 and 2013 citing faster decline in industrial production in the last two quarter of 2012. In its latest Regional Economic Prospects Report published in January, the EBRD said it expects Ukraine’s economy to post a zero growth in 2012 and expand by 1% in 2013, cutting its forecasts from earlier expected growth of 1% and 2.5%, respectively. Ukraine’s industrial production in 2012 contracted by 1.8% from 2011 with the annual fall in December deepening to 7.6% from 3.7% in November, according to data from the State Statistics Service. Agricultural production is no exception, declining by 4.5% y/y in 2012 versus a 19.9% growth in 2011. Crop production last year fell by an annual 8.2%, with commercial farms’ production going down by 10.9% and that of private farms decreasing by 4.6%, – animal goods’ production, on the other hand increased by 3.8%. Specifically, output of commercial farms was higher by 7.6% and of private farms by 1.2%. According to
preliminary data, the strongest annual output growth was registered in Khmelnytsky (+12.9%), Ternopil (+9.8%) and Kyiv (+9%) regions, while the steepest decline was reported in the regions of Dnipropetrovsk (-20.3%),
Zaporizhzhia (-19.2%) and Odesa (-19.1%).

Much more in the Intellinews report: Ukraine Food Sector Report

 

Ukraine’s construction industry building on weak foundation

Ukraine’s construction sector managed to emerge from the deep recession seen in 2008 and post a growth of 11.1% y/y in 2011. Thanks to the EURO 2012 preparations. However, the growth will likely slow down this year amid struggling economy and the absence of private sector investment.

Throughout 2012, the best results were reported by the primary market of Kiev residential housing. As analysts are pointing out, this segment is expanding following adequate pricing policy and installment programs provided by the developers.

In general, residential housing prices have been slipping during the year due to global economic slowdown and the population’s weak purchasing capacity. This, alongside with the absence of mortgaging and growing tax rates led to market stagnation. In January to October, construction works in the country declined by 10.2% y/y to UAH 48.8bn (USD 6bn), the State Statistics service said.

This is just a quick glimpse into the Intellinews Report: Ukraine Construction Sector. Learn more and purchase now>>

 

Ukraine’s currency may have to be devalued

The IMF has maintained its GDP growth forecast for 2012 at 3% y/y compared to 5% growth recorded in 2011. In 2013, the GDP growth is expected to reach 3.5%. The global slowdown of economic growth has a great impact on the Ukrainian economy as one of the CIS energy importing economies, the IMF noted. Moreover, the IMF warns about risks in case of intense crisis in the Eurozone. For the energy importers in the region, direct trade spillovers from a further escalation of euro crisis would also be sizable given that Europe is the most important trading partner outside the region. If downside risks materialize, external balances would deteriorate, which would tend to exacerbate capital outflows and put pressure on currencies, especially among energy importers with large external financing needs (Ukraine).

Rating agency Fitch believes that the local currency hryvnia may fall 10% by the end of the year due to “fairly weak” confidence in the currency. A slight devaluation and adopting to more flexible exchange rate would benefit the country, the agency noted. At the same time, officials, including PM Mykola Azarov assures of a stable hryvnia and brushes off economic preconditions for devaluation. The hryvnia, which has declined 1.2% against the dollar this year, was devalued by almost 35% in Q4 2008.

We believe that Ukraine will have to devalue national currency in the next few months in order to support competitiveness of exports and prevent the growth of foreign trade deficit. If the economic situation worsens, the drop in NBU’s reserves may reach critical level and devaluation may be inevitable.

The outlook on domestic banking system remains negative, according to Moody’s Investors Service. The rating agency believes the challenging operating environment and weak economic growth through 2013 as main causes. The real GDP growth is expected to decelerate to around 2.5-3.0% in 2012. According to the rating agency, this weak economic performance will continue to weigh on banks’ credit growth and financial positions over the next 12-18 months.

 

 

 

 

Much more in the Intellinews report: Ukraine Financial Sector Report

 

Independence through extraction for Ukraine

Ukraine seems interested in developing own shale gas resources as a diversification from predominant Russian imports, but the business climate in the country looks problematic. The state is very interested in energy projects; however investors are cautious of moving into Ukraine’s energy business at the moment, as this often meant joining up or competing with state-based organizations, or groups that could be linked to state officials or their relatives.

Ukraine has significant shale oil gas reserves, according to the existing estimates, equal to those of Sweden and roughly one quarter of the reserves of the major reserve holders Poland and France. OECD/IEA indicates roughly 1,100bn m3 of gas reserves. Wood Mackenzie however indicates  that the Lublin basin, in Poland, could have reserves in excess of 1,400bn m3 and have equal reserves in the Ukrainian portion of the basin.

Main shale gas basins in Ukraine [Source: Advanced Resources International, IntelliNews]

With Europe’s fourth largest shale gas reserves according to the OECD/IEA, and hopes for even more as supported by prognoses like those put forth Wood Mackenzie and others, the production stakes in Ukraine have aroused international interest. Exploration on the Ukrainian side of the border so far has been narrow however.  This is largely the purview of internationals.  TNK-BP, Gazprom and Shell are looking at Ukrainian exploration. There are also several junior explorers, such as Eurogas, actively exploring in Ukraine.

This is only a small extract of the insights in the IntelliNews Special Report, Ukraine Shale Gas Sector; read more and purchase>>

 

Shale gas extraction boom in Eastern Europe: fact or fiction?

In the US, 12 years after the start of significant operation, shale gas flows reached some 170bn m3. The real impact was visible in the second half of the cycle, when supplementary non-conventional gas pushed exports and consumption up and imports down.

Will this be the case in Europe? Our findings point to the fact that even if certain areas of the continent (Eastern Europe particularly) are strongly interested in grasping this opportunity, a would-be shale boom in Europe reach neither the magnitude nor the speed of development seen in the US.

Europe will rather seek to diversify its external gas resources by building LNG terminals or investing in pipeline to gas rich regions. Actually, the shale gas at global level will not reach the magnitude seen in the US recently, as suggested by the consensus projections.

More detail, including extensive analysis of markets, technologies, political landscape and specific businesses, in the IntelliNews special report, East Europe Shale Gas Sector; read more and purchase>>

 

Ukraine agriculture feeds its economy

Ukraine claims its position as one of the leading agricultural countries in the world.

The country possesses 30% of the world’s black earth– the most favorable soil for agriculture.

In 2011, the agricultural production increased by 17.5% year over year, reported the State Statistics Service. The highest growth was seen in the north eastern Ukraine (Kharkiv, Poltava, and Symy regions). Interestingly, both agricultural firms and households experienced production growth of 23.8% and 12.3%, respectively.

The sector is making more money.  In 2011 State Statistics Service data show  agricultural profits rose by 52.3% year over year, to UAH 19.8bn (USD 2.5bn).  Not only that, it seems more farmers are getting better at becoming profitable.  Income 79% of enterprises engaged in agricultural production and services we profitable.

The EBRD believes Ukraine has great potential in agriculture, and should be attracting investors  Indeed, they are unafraid to put their money where their mouth is.  Others are less intrepid.  Frequent changes in legislation tend to impede investment.

These are only a few of the insights found in the June 2012 number of the  IntelliNews Ukraine Food SectorReport,.. Read more and purchase>>

 

Frack-tured Fairy Tale to affect CEE gas markets

Hydraulic fracturing (fracking) offers an opportunity to extract an abundant and cheap resource, in shale gas. Countries with potential shale gas resources (particularly in Central Eastern Europe) long for alternatives to their dependence on oil-rich countries, and in many cases fracking has the potential to turn energy net-importers into energy net-exporters.

Get your critical questions for risk and investment management answered:

Will environmental issues make or break the opportunity?

In three countries, environmental concerns threaten to shut down fracking before energy concerns can turn a profit. Find out which investments are at risk.

Russian gas to lose its stranglehold?

New sources for natural gas could completely transform the figure below, showing imports from Russia compared with other sources.

The colours could be completely reversed within a relatively short time-frame and cause dramatic alterations in the economic landscape.

More thunder than lightning?

There’s great excitement and buzz around the potential of hydraulic extraction of natural gas. How much is warranted and how much hyperbole?

Our analyst breaks through the dramatics to provide solid analysis to help you manage your risk.

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