The latest regular quarterly survey of company managers regarding their assessment of current and future business activity, inflation and exchange rate expectations, and changes in the business climate in the country was conducted in November 2010.
Conclusions
In Q4, respondents’ inflation expectations decreased. But enterprises expect devaluation hryvnia to US dollar and euro. For the second quarter in a row respondents expect a lower increase in the volume of production of goods and services in Ukraine in the next 12 months. Balance of answers (calculated as the difference between the percentage of positive and negative responses) reduced by 3.7 p.p. to 13.8%. Tax pressure was named as the main negative factor for production and prices development.
Inflationary expectations decreased. The weighted average expected inflation rate decreased to 14.1% against 14.5% in the previous quarter. The increasing of production costs was named as the key factor for the high expected inflation. The influence of expected taxation changes has become significantly stronger, and almost reached the level of influence of production costs. The influence of the NBU activity and exchange rate fluctuations on inflation has continued to weaken.
Estimation of the current financial and economic conditions has remained on a low level, forecasting a slow economic activity revival. According to the survey results, the respondents persisted with their negative assessment of their own current financial and economic conditions. The balance of opinions has remained negative (-7.0% vs. -9.7% in Q3). The respondents reported low level of inventories. Capacity utilization still has increased.
Business expectations index increased to 120.0% vs. 115.4% in Q3 due to improving of respondents’ expectations about future sales, investments in buildings and employment.
Expectations of input prices growth and output prices growth have become weaker. Production costs and labor costs will grow. The cost of raw materials and energy are expected to remain the key factors to the changes in output price levels. Influence of the exchange rate volatility on prices and production continued to decrease due to stable exchange rate situation. Influence of credit interest rate change on output price also decreased.
The respondents again noted a weakening of credit conditions and expect an increase in borrowing needs. The high level of interest rates remains the key restraining factor that prevents borrowing from banks. Influence of exchange rate volatility factor has increased.
In total, 1243 enterprises from all regions were interviewed. They were selected to reflect the economy structure with regard to principal types of activity, forms of ownership and size of enterprises as measured by the number of employees.
Disclaimer: The results of the survey reflect the opinions of respondents – Ukrainian business managers – as of November 2010, and do not represent the views and policies of the NBU.