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 February 2010. 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.
Conclusions
In Q1, respondents’ assessment of their own situation and prospects for the economy in general improved forth quarter in a row. Expectations were improved due to demand increasing, stable currency exchange market situation and end of political confrontation at the time of surveying.
According to the survey results, the respondents persisted with their negative assessment of their own current financial and economic condition. The balance of opinions (calculated as the difference between the percentage of positive and negative responses) has remained negative (-19.3% vs. -18.6% in Q4 2009). The respondents reported a decrease in inventories, capacity utilization has increased. It shows economic activity reviving.
Business expectations index grew to 115.6% vs. 104.4% in 4Q 2009. All components of the index improved due to essential improvement of firms’ economic development prospects over the next 12 month. Respondents expect improvement in financial and economic conditions confidently. The balance of opinions improved to 27.1% vs. 6.6% in the previous quarter. Respondents of all types of economic activities expect growth in investments for buildings and machinery and employment growth in the next 12 months. It indicates the economy will recover over the next 12 months. Respondents of all types of economic activities expect growth in sales volumes both in the domestic and external markets.
Inflation pressure is unlikely to become weaker over the next 12 month, according to the opinions. Input prices are expected to grow. The cost of raw materials and energy are expected to remain the key factors of the change in output price level. The same factors are limiting ability to increase the production. At the same time insufficient demand and severe competition are restraining adequate increasing in output prices. Stable exchange rate in Q1 contributed to decreasing impact of the exchange rate on prices and production.
The respondents expect an increase in borrowing needs and note a weakening of credit conditions. The percentage of respondents that plan to obtain bank loans has declined by 0.7 p.p. to 45.6%. The high level of interest rates, excessive collateral requirements and complicated loan procedures remains the key restraining factors for borrowings from banks. Influence of exchange rate volatility factor has decreased.
Inflationary expectations have essentially declined. The weighted average expected inflation rate decreased to 14.6% against 15.1% in the previous quarter. Most companies (52.7%) expect that the consumer price inflation will be between 10-20% over the next 12 months. The increasing of production costs, exchange rate fluctuations and household income were named as the key factors for the high expected inflation. The influence of the NBU activity has become weaker.
Respondents expect an increase in the volume of production of goods and services in Ukraine in the next 12 months. Share of the respondents who expect no growth in the economy over the next 12 months decreased to 20.9% vs. 41.9% in the previous quarter. Assessments of hryvnia exchange rate stability also improved: 40.9% of respondents expect the UAH to USD exchange rate to remain unchanged (as compared with 33.3% in the previous quarter).
Disclaimer: The results of the survey reflect the opinions of respondents – Ukrainian business managers – as of February 2010, and do not represent the views and policies of the NBU.
Business expectations index is an aggregated indicator about expected development of enterprises. It is calculated using balance of answers of respondents about future changes in financial and economic conditions and future economic activity (methodology is attached)