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 August 2010.
Conclusions
In Q3, respondents’ assessment and expectations remained on the positive level. But enterprises expect lower economic growth, higher inflation pressure and worsening of their own situation.
According to the survey results, 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 19.7 p.p. to 17.5%.
Inflationary expectations, in contrast to three previous quarters, have increased. The weighted average expected inflation rate increased to 14.5% against 11.8% in the previous quarter. The increasing of production costs and household income were named as the key factors for the high expected inflation. The influence of expected taxation changes has become stronger significantly. The influence of the NBU activity and exchange rate fluctuations on inflation has continued to weaken.
Share of respondents who expect the UAH to USD exchange rate to remain unchanged decreased.
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 (-9.7% vs. -18.0% in Q2). The respondents reported significant decrease in inventories. Capacity utilization has increased.
Business expectations index decreased to 115.4% vs. 121.8% in Q2. According to respondents’ expectations, all components of index, despite investments in buildings, decreased. But expectations about financial and economic conditions, volume of sales both in the domestic and external markets, and employment stayed positive.
Expectations of input prices growth and output prices growth have become stronger. 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. The excessive tax pressure and cost of energy limit the ability to increase production. Influence of the exchange rate volatility on prices and production continued to decrease.
The respondents noted a weakening of credit conditions for the fourth quarter in a row. The percentage of respondents that plan to obtain bank loans has increased by 2.1 p.p. to 46.5%. The high level of interest rates, excessive collateral requirements and complicated loan procedures remains the key restraining factors for borrowing from banks. Influence of exchange rate volatility factor has decreased.
In total, 1192 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 August 2010, and do not represent the views and policies of the NBU.