The results of the Business Outlook Survey (BOS) conducted by the National Bank of Ukraine in Q2 2016 suggest that the inflation expectations of Ukrainian businesses have kept improving for the fifth quarter in a row.  The respondents expect consumer prices to rise by an average of 18.9% over the next 12 months, compared to 22.2%, the rate of inflation projected by businesses in the previous quarter.  

The respondents assume that the exchange rate movements and the growth in production costs will remain the major drivers of inflation.  However, the impact of the exchange rate factor on consumer prices was perceived as much weaker than previously expected.

Business confidence in the stability of the hryvnia exchange rate has increased. Thanks to favorable commodity market conditions, daily fluctuations of the weighted average exchange rate did not exceed 2% of the average value recorded at the time of the survey. Overall, the hryvnia gradually appreciated over Q2 2016.   

The strengthening of the hryvnia contributed to easing depreciation expectations.

Also, following a temporary decline in Q1 2016, business expectations rebounded in the subsequent quarter.  In Q1 2016, the Business Outlook Index (BOI) stood at 108.5%, having increased by 10.1 percentage points q-o-q. The respondents were most optimistic about their future financial and economic standing, growth in sales volumes and higher investment spending on construction projects, machinery, equipment and inventory.

In the wake of positive expectations, the respondents expect their borrowing needs to increase in the nearest future. As before, about a third of respondents intend to take loans to finance their business activities.  The majority of respondents plan on taking hryvnia loans (86.2% of respondents).

For reference

683 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.