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Ukraine government raises pensions
The government of Ukraine has announced a pension hike for 10 mln Ukrainian citizens. The increase will be between UAH 75 and UAH 100 (USD 15.5-20.6) for each recipient.
A further increase is scheduled for September 1, 2008. In addition to the baseline monthly pension increase, disabled people will get an extra UAH 110-140 (USD 22.7-28.9), while WWII veterans will get an additional UAH 127-159 (USD 26.2-32.9).
The government announced that the pension increase is in line with the budget amendments proposed by the government. These amendments, however, were not approved by parliament last week and will be put to a vote once more in September.
Our view:
While the overall amount has not yet been announced, we anticipate that the total amount of these transfers is UAH 650 mln (USD 134 mln) per month or UAH 3.2 bln for the rest of 2008. We must note that while the budget amendments were not approved by parliament, the government’s step indicates that Prime Minister Yuliya Tymoshenko is absolutely confident that the amendments will be approved shortly.
While the increase of M1 will lead to inflation growth, we do not expect the influence to be a substantial one. Monetary factors are not the main cause of Ukrainian inflation. Therefore, we do not modify our earlier forecast of inflation in 2008 at 22%.
Ukraine`s unemployment falls in June
The State Statistics Committee of Ukraine announced that unemployment in June fell to 1.9% compared to 2% in May and 2.2% in April 2008.
Our view:
While official unemployment figures are a poor reflection of real unemployment in the economy, their dynamics generally represent changes to the true unemployment rate.
As illustrated in our recent report "Middle Class: Shining in the Midst of the Rain", the labor shortage is the main driver behind the bargaining power of workers on the Ukrainian labor market, leading to higher wages. Although wage increases lead to inflation, nominal wages have historically grown faster than CPI in Ukraine. In addition, Ukrainian labor is undervalued compared to that in neighboring countries.
We expect that the decrease in official unemployment will lead to a further increase in nominal wages, which, in turn, will nurture inflation. Yet, we expect that the real incomes of Ukrainians will still experience growth.
The announced official unemployment figure dynamics is pretty much in line with the fall in unemployment predicted by Sokrat. Therefore, we do not revise our earlier forecast for inflation in 2008 at 22%.
We expect a further true (calculated according to the ILO methodology) unemployment rate drop in 2008-2012.
VINM increased output by 20.6% in June: POSITIVE
JSC Vinnytsyamyaso [VINM, N/R], the Ukrainian producer of meat, canned meat, meat by-products and sausages, has increased production by 20.6% YoY in June, up to USD 2.6 mln. At the same time, production in June fell by 14.8% MoM. In June, the company produced 625 tons of meat, 106 tons of meat by-products, 22 tons of sausage products, and 33 tons of canned meat. In total during 1H08, the company has increased its production by hefty 105.1%, up to USD 18.7 mln.
Our view:
The POSITIVE 1H08 production results are apparently due to renewed exports of the company’s products to Russia. At present, VINM’s stock is totally illiquid; it has not been traded even once since the moment of its inclusion as a PFTS listing, which took place a year ago. This might change, however, once stock markets regain their strength and investors start looking at undervalued small-cap companies more closely.
Ukraine to export 15 mln mt of grain in 2008/09: POSITIVE
The Deputy Head of the President’s Office in Ukraine has announced that Ukraine can export a total of 15 mln mt of grain in 2008/09, which implies a USD 4 bln (vs.USD 0.8 bln in 2006/07). Ukraine`s Ministry of Agriculture predicts a harvest of 40.0 mln mt (+36.5% YoY). Consequently, 46 mln mt, including 5.5 mln mt of reserved grain, can be traded during the 2008/09 year.
Our view:
The government’s grain export forecasts are feasible. Earlier, forecasts from two separate agricultural analytical agencies were published, which forecasted grain crops amounting to 43 mln mt (Ukragroconsult forecast) and 41.1 mln mt (AAA forecast).
In our view, the released export figures are the bottom line for grain exports, and the real figures may surprise us with an additional 15% to government estimates.
Changes to the State Budget for 2008 is still undergo and the Rada has scheduled votes on amendments to the State Budget, which will take place in September. At that time, a generous USD 31 mln is planned to be paid to agricultural companies.
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