Russian blockade and European embargo suppress Ukrainian exports: key figures

Trends in foreign trade in goods and services in May and at the beginning of the year. According to the NBU, the negative balance of foreign trade in goods in May worsened to minus USD 2.03 billion (against minus USD 1.72 billion in April), while the negative balance of trade in services continued to decline to another low since the beginning of the war (minus USD 0.5 billion in May against minus USD 0.59 billion in April).

Exports of goods remained depressed due to artificial obstacles created by Russia in the operation of the grain corridor (formally in effect until 18 July), as well as a partial embargo on agricultural supplies to neighbouring EU countries (currently in effect until 15 September).

According to the UCAB, only 1.3 million tonnes of agricultural products were exported from ports in May (compared to 4 million tonnes in March). In June, these negative blocking trends continued, including on 26 June, when the Russian side stopped registering the entry of the new fleet into Ukrainian ports, blocking almost three dozen vessels with a capacity of 1.4 million tonnes of grain in Turkish territorial waters.

As a result, in May, total food exports fell to USD 1.68 billion (against USD 1.74 billion in April). This is the worst result since August 2022, when the grain corridor was launched, and a third less than the average exports in autumn last year.

The decline in agricultural exports was primarily offset by an increase in the supply of ferrous metals to foreign markets. Overall, monthly merchandise exports reached USD 2.89 billion in May, remaining at the level of the previous month in 2023.

After a significant drop in April, the growth in imports of goods in May resumed to USD 4.93 billion (+USD 0.31 billion for the month), but (!) it is noteworthy that the bulk of this increase is attributable to the "miscellaneous" item, which includes the volume of informal trade.

Exports of services in May increased by $0.1 billion to $1.42 billion due to two main factors: an increase in transport services to $0.37 billion (+$42 million in May, the monthly maximum since the start of the war) and computer services (+$51 million, the monthly maximum since the beginning of 2023). In IT, the year-on-year decline has almost levelled off (minus 1.8% by May 2022).

Imports of services continued to be restrained by lower spending by Ukrainian migrants abroad: imports of services for travel fell to an average of USD 1.36 billion in April-May 2023, compared to an average of USD 1.85 billion in the 12 months before that.

In the first five months of the year, the deficit in foreign trade in goods and services reached USD 14.16 billion. In the structure of exports of goods for this period:

• 65% were agricultural products;
• 11% - metals;
• 6% each - mineral products and mechanical engineering;
• 5% - wood.

The structure of services exports was dominated by IT services (41% of the total) and transport (26%).

Compared to the first five months of 2022, exports of goods decreased by 12.3% across all product groups (metals and mineral products fell the most), except for food (+18.3%). In terms of services, exports of IT services decreased by 11.8%, while exports of transport services increased by 22.1%.

In terms of goods imports, the structure of imports of goods is dominated by:

• machinery and equipment (28% of the total, up 41% compared to 5 months of 2022);
• mineral products (20% share, up 1.3%);
• chemical products (18%, +23.7% respectively).

In the import of services, the lion's share (73%) is accounted for by the already mentioned "travel", which accounts for business and personal expenses of residents abroad. Compared to 5 months of 2022, such expenditures increased by 23%.

Due to the war, the foreign trade deficit remains significant ($14.2 billion), having increased 2.8 times compared to the same period last year and 160 times compared to the last relatively peaceful pre-war year (the foreign trade deficit in January-May 2021 was only $88 million).

At the same time, it can be stated that the NBU's most pessimistic forecasts of a USD 50 billion deficit in foreign trade at the end of this year, which were made at the beginning of the year, have not yet come true. The outlook for the rest of the year will depend on:

• extension of the grain corridor;
• cancellation of the partial embargo on imports of our agricultural products by the EU neighbouring countries as of 15 September;
• the situation in the energy sector in the new heating season;
• implementation of state programmes to support exporters (through cheaper lending, ECA instruments, grants to small and medium-sized enterprises, etc.)