The results of the Business Outlook Survey conducted by the National Bank of Ukraine in Q4 2015 suggest that Ukrainian businesses expect inflation to slow further in 2016. Enterprises' inflationary expectations have been improving for the third quarter in a row. The respondents expect consumer prices to rise by an average of 22.5% over the next 12 months. (vs 25.5% in Q3 2015).

The respondents assume that exchange rate movements and growth in production costs are behind the upward trend in consumer prices. Money supply, budget expenditures on social welfare, and global price movements were perceived as having the weakest impact on price increases.

Depreciation expectations have become somewhat stronger in response to exchange rate fluctuations of the hryvnia seen in the past few months. Now 86.6% of respondents expect the domestic currency to depreciate over the next 12 months.

The respondents expect economic activity to recover in 2016. The Business Outlook Index (BOI) has stood at over 100% for the second quarter running, the highest reading since Q2 2014. In Q4 2015, BOI stood at 104.0%, hitting a year-and-a-half high. In particular, BOI rose by 3.8 percentage points q-o-q. The respondents from agricultural, energy and water supply enterprises, and trade enterprises were the most optimistic in their outlook. The lowest expectations were reported by respondents from mining and transport enterprises.

This trend reflects more optimistic expectations of businesses with regard to their development prospects, notably the growth in sales volumes and investments, as well as an improvement in the financial and economic standing of their enterprises. The respondents expect the pace of decline in industrial output to moderate.

Given the expected recovery in manufacturing activity, the respondents expect their borrowing needs to increase in the near term. Among those who intend to take loans to finance their business activities (35.0% of polled enterprises), the majority of respondents plan on taking hryvnia loans (86.2% of the respondents).

The percentage of respondents who said that they had no difficulty in effecting transactions using funds in bank accounts has been on the rise for the third running quarter (91.3% of the respondents).

For reference, 859 enterprises from 22 regions of Ukraine (excluding temporarily occupied Crimea and Donetsk and Luhansk regions), representing the economy in terms of main economic activities, patterns of ownership, size, and staff number, were polled in the survey. The survey only reflects the opinions of respondents (heads/managers of Ukrainian enterprises) who were polled, and does not represent NBU forecasts or estimates