JPMorgan Econ FI-Europe Edge-107447291

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Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466

nicolaie.alexandru@jpmorgan.com

J.P. Morgan Securities plc

Anatoliy A Shal (971) 4561-2005

anatoliy.a.shal@jpmorgan.com

Europe Economic Research

08 April 2024

JPMORGAN

-4

-2

12 13 14 15 16 17 18 19 20 21 22 23 24

Target

CPI

Core ex. tobacco

Figure 1: Georgia headline and core inflation measures

%oya

Source: 1GEOSTAT, J.P. Morgan

14 15 16 17 18 19 20 21 22 23 24 25

NBG rate

Headline CPI

Source: NBG, J.P. Morgan

Figure 2: Georgia, Monetary Policy Rate vs inflation

Forecast

Kazakhstan: disinflation continues

Nicolaie Alexandru Chidesciuc

March CPI was, again, fully in line with our forecast as it

printed 9.1%oya from 9.3%. Disinflation was driven by food

which slowed to 7%oya from 7.5% and surprised us about

0.4%-pts to the downside (Figure 3). Non-food inflation was

in line and it also showed disinflation, to 8.3%oya from 8.6%.

However, the positive surprise on food was offset by the

stronger-than-expected services inflation which jumped to

13.2%oya relative to 12.7% expected (from 12.8% in Febru-

ary). On a sequential basis, all three components slowed from

February but services inflation remains the highest at 1.1%m/

m after 1.8% in February.

07 09 11 13 15 17 19 21 23 25

%oya

Figure 3: Kazakhstan: disinflation, but sticky services

Food

Non-food

Services

Source: Bureau of National Statistics

This is an extract from the EM Edge Data Watch. For the full

publication and thematic essay please use this link

•Georgia: core and headline inflation remain soft in March

allowing NBG to continue rate cuts

•Kazakhstan: CPI for March showed disinflation in line

with the forecast but NBK likely to cut only 25bp next

week

•Ukraine: huge jump in FX reserves on largest FX inflows

in a single month since the start of the war

•Ukraine: CA deficit slows further; we revise the 2024 def-

icit slightly lower

Georgia: benign March inflation

Nicolaie Alexandru Chidesciuc

Headline CPI remained well below target and was only one

tenth above our March forecast. The print came in at 0.5%oya

from 0.3% in February - we expected 0.4%oya. Most compo-

nents showed no concerning developments with strength

apparent only in transportation (due to fuel) and services

(hotels, restaurants and miscellaneous). On the other hand,

goods deflation deepened; food remained in deflation at

-3.4%oya from -3.5%. Core inflation excluding tobacco

slowed to 2.3%oya from 2.4%, somewhat less than we

expected - yet, the sequential print was negative. Both core

and headline remain below the 3% inflation target (Figure 1).

We believe that inflation dynamics remain supportive of fur-

ther NBG rate cuts - we expect the next one in May to

amount 50bp, a slowing from 75bp delivered in March. We

expect headline inflation to accelerate on base effects, FX

pressure and rising core on excess demand but inflation

should remain around the target (Figure 2). Our forecast sees

the policy rate at 7.25%, in line with the neutral rate of 7%.

Considering that inflation dynamics are not concerning and

that risks are for lower inflation, the NBG might have space

to cut somewhat below 7%. We see that limited by the wide

CA deficit and by the rather strong REER - both suggest FX

needs to weaken.

Europe Edge

Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466

nicolaie.alexandru@jpmorgan.com

J.P. Morgan Securities plc

Anatoliy A Shal (971) 4561-2005

anatoliy.a.shal@jpmorgan.com

Europe Economic Research

Europe Edge

08 April 2024

JPMORGAN

Incorporating latest data, we revise inflation forecast to the

downside for 2024. We have been surprised to the downside

in food and upside in services in recent months. The food

component is now running at a pace well below our forecast

for the following months and we have therefore lowered our

forecasted values. We also added on services, but not as much

given that we already had elevated forecasts. Finally, on the

goods side, we have slightly revised to the downside. All in,

this leaves our forecast for end-24 at 8.5% from 9.2% previ-

ously. We think these changes open up space for rate cuts lat-

er in 2024. Rate cuts are delivered as inflation slows and real

rate remains elevated (Figure 4).

However, for the rate meeting next week we expect the

National Bank of Kazakhstan (NBK) to cut by only 25bp, a

slowdown from the 50bp pace. This is not driven by the infla-

tion outlook which we think has improved somewhat based

on March data but by its cautious approach - recall that NBK

indicated a pause after its 50bp cut in February. In our opin-

ion, March inflation data does not justify a pause in the easing

cycle but NBK might still pause if it perceives such a move is

needed for its credibility. We continue to see the policy rate at

13% at end-24 (from 14.75% currently) but now see some

downside risks. Factors that could prevent disinflation and

rate cuts are sharp FX depreciation, large fiscal spending and

persistent inflation globally.

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Figure 4: Policy rate and inflation in Kazakhstan

Policy

rate(%)

Inflation

(%oya)

Forecast

Source: Bureau of National Statistics, NBK, J.P. Morgan

Target band

Ukraine: revising the CA deficit for 2024

Nicolaie Alexandru Chidesciuc

February’s CA deficit at -US$111mn was lower than both

January (-US$461mn) and February 2023 (-US$671mn). This

might suggest a significant improvement is underway but the

seasonally-adjusted data shows a flat CA deficit at about

-US$610mn. However, the trade balance showed similar

trends as the CA balance with the main difference being that

even after a seasonal adjustment there is a decline in February

from January (to -US$1.7bn from -US$2bn) and also relative

to February 2023 (-US$2.3bn). The trade deficit likely

reflects better trends in CA because overall CA is impacted by

the flows in secondary and primary income which can lead to

wrong seasonal factors. It is clear from Figure 5 that the

improvement is on the back of a strong recovery in exports

(as Ukraine’s Black Sea corridor works better than expected)

while imports remain downbeat - for the latter, border restric-

tions in Poland likely play an important role. While exports

might improve further, we also expect imports to increase. On

these favourable trends, we have revised the trade deficit low-

er to show only -US$31bn from -US$28.8bn recorded in 2023

(previously we had a much larger trade deficit).

On the services side the dynamics are similar, but less pro-

nounced (Figure 6). For services, we expect a drop in imports

especially as Ukrainians living abroad fund themselves with

jobs in those countries rather than savings from Ukraine. At

the same time, exports are likely to trend higher on sea and

road transport. Services deficit should thus decline from

about -US$8.6bn last year to about -US$6bn this year.

Regarding primary balance, we expect a slightly larger sur-

plus in 2024 than in 2023 as interest costs are declining and

remittances appear to have stabilized. Finally, we were pro-

jecting a large secondary income surplus - but this is unlikely;

we still assume a surplus, but only US$16bn from US$23bn

in 2023 and over US$25bn in 2022.

The CA balance is likely to post a deficit of -US$15bn from

-US$9.2 recorded in 2023. Looking into 2025, the deficit is

likely to increase as trade balance, primary income and sec-

ondary income accounts are likely to worsen and only servic-

es balance should improve. As the basic balance is deeply

negative and likely to worsen (Figure 7), this implies that FX

intervention by NBU are likely to continue and UAH weak-

ening should remain in place (its extent to be managed by the

NBU based on its inflation target).

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

US$ billion

Source: NBU, J.P. Morgan

Imports

Exports

Figure 5: Exports and imports of goods (sa data)

Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466

nicolaie.alexandru@jpmorgan.com

J.P. Morgan Securities plc

Anatoliy A Shal (971) 4561-2005

anatoliy.a.shal@jpmorgan.com

Europe Economic Research

08 April 2024

JPMORGAN

0.5

1.0

1.5

2.0

2.5

3.0

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

US$ billion

Source: NBU

Imports

Exports

Figure 6: Exports and imports of services (sa data)

-13

-10

-7

-4

-1

09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

$bn, 12m rolling

Source: NBU

Figure 7: The basic balance implies FX weakening

CA+net FDI

Ukraine: FX reserves at new record high in

March

Nicolaie Alexandru Chidesciuc

Gross FX reserves increased to a new record high level of

US$43.8bn in March driven by large inflows from foreign

donors. Ukraine received US$9bn in March, mostly in loans

from EU (US$4.9bn), WB through Japan and UK guarantees

(US$1.6bn), Canada (US$1.5bn), and IMF (US$0.9bn).

Ukraine received some grants too: US$118mn from Japan

and US$32.4mn from Serbia. Other inflows came from issu-

ance of FX debt worth US$0.3bn and revaluations (also

US$0.3bn). On the outflow side, Ukraine repaid US$0.4bn in

domestic FX debt, US$0.7bn to the IMF and NBU spent

US$1.8bn in FX interventions.

The stock of FX reserves accounts for 5.8 months of prospec-

tive imports estimated by the NBU (5.7 months on our esti-

mates). From a historical perspective, the same indicator is

6.2 months of imports - this is a rather strong FX reserves

position (Figure 8).

We expect FX reserves to decline somewhat in April despite

another EUR1.5bn from the EU, but the stock of FX reserves

to be even higher at end-24. Our forecast is US$46.5bn for

end of this year but assumes Ukraine will benefit from US

support too. Without US support (at maximum US$8bn), FX

reserves would finish 2024 at a level lower than in 2023.

0.5

1.5

2.5

3.5

4.5

5.5

6.5

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

US$ billion

months

FX reserves (including

gold)

Imports coverage

(including gold)

Figure 8: Ukraine, FX reserves indicators

Source: NBU, UkrStat

Data releases and forecasts

Week of April 8 - 12

Belarus:

Thu Consumer prices

Apr 10 %oya

Dec Jan Feb Mar

%oya 5.8 5.9 5.5 __

%m/m nsa 0.9 0.8 0.9 __

Georgia:

Fri Official reserve assets

Apr 8 US$ bn

Dec Jan Feb Mar

5.0 4.9 4.7 __

Kazakhstan:

Tue Gross international reserves

Apr 9 US$ bn

Dec Jan Feb Mar

Total 36.0 36.7 36.2 __

Gold reserves 19.5 19.7 20.0 __

Fri NBK rate decision

Apr 12 %

12:00pm Jan Feb Mar Apr

NBK base rate 15.25 14.75 14.75 14.50

Serbia:

Thu NBS rate decision

Apr 11 %

Jan Feb Mar Apr

NBS 1-week repo. rate 6.50 6.50 6.50 6.50

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1NicolaieAlexandru-Chidesciuc(4420)7742-2466nicolaie.alexandru@jpmorgan.comJ.P.MorganSecuritiesplcAnatoliyAShal(971)4561-2005anatoliy.a.shal@jpmorgan.com1Nicola1eccAxeanldlrieu08April20241Nicolae-rCrhudsr(a4xdx20rsxcaecsxNld1NicolNaeoaAlxndreu-NnaCiNriiAxndrNud-Chds(4hd20))7d(4d)(46d-(.nd@0Ad2@A6xC....

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