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 May 2010.
Conclusions
In Q2, respondents’ assessment of their own situation and prospects for the economy in general improved significantly. Inflationary expectations decreased. Expectations of future firms’ financial and economic conditions, investments and employment improved.
According to the survey results, respondents expect an 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) grew by 24.6 p.p. to 37.2%.
Inflationary expectations have declined third quarter in a row. The weighted average expected inflation rate decreased to 11.8% against 14.6% in the previous quarter. The increasing of production costs, household income and budgetary expenditures were named as the key factors for the high expected inflation. The influence of expected taxation changes has become stronger. The influence of the NBU activity and exchange rate fluctuations has become weaker.
Share of respondents who expect the UAH to USD exchange rate to remain unchanged increased, most of respondents expect appreciation of hryvnia to euro.
Business expectations index grew to 121.8% vs. 115.6% in Q1. According to respondents’ expectations, financial and economic conditions will improve over the next 12 months, volume of sales will grow both in the domestic and external markets, investments and employment will increase.
Expectations of input prices growth have become weaker. Output prices will grow slowly. Production costs will grow, especially labor costs. The cost of raw materials and energy are expected to remain the key factors to the changes in output price levels. The same factors limit the ability to increase production. Stable exchange rate in Q2 contributed to decreasing impact of the exchange rate on prices and production.
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 (-18.0% vs. -19.3% in Q1). The respondents reported an increase in inventories, but it was estimated as too low by most of respondents of all types of economic activities. Capacity utilization has decreased.
The respondents note a weakening of credit conditions and expect a decrease in borrowing needs over the next 3 months. The percentage of respondents that plan to obtain bank loans has declined by 1.2 p.p. to 44.4%. 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, 1242 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 May 2010, and do not represent the views and policies of the NBU.