The regular quarterly survey of enterprises' presidents/managers on their assessments of the current and future business activity, inflationary and exchange rate expectations, and changes in the business environment in the country was held in May 2009. Interviewed were 1,271 enterprises from all regions representing the economy by main types of activity, forms of ownership, size and number of employees.

The second quarter saw a marked improvement in enterprises’ expectations, although it would be early to discard the vulnerability of the Ukrainian economy to new possible shocks.

According to the survey, the respondents enhanced assessment of the financial and economic standing of their enterprises. Although the balance of responses (difference between percentages of the positive and negative responses) remained negative (-17.7%), the proportion of the respondents regarding their enterprises’ standing as satisfactory augmented to 65% (against 60.2% in the first quarter of 2009). The percentage of those considering their enterprises’ standing to be good also showed an increase to 8.7% from 6% in the previous quarter. The finished goods inventory balance and usage intensity of the production capacities have been reducing for the second consecutive quarter.

The respondents from all types of economic activity do not expect deterioration of the financial and economic standing of their enterprises in the next 12 months (the balance of expectations made up (-0.2%) against (-30.4%) in the previous quarter). By respondents’ estimates, the sale volumes will expand in both the domestic and external markets. However, the respondents do not expect an increase in investments and the number of employees. Thus, respondents’ assessments of the medium-term outlook on their own development remain restrained.

Production costs and starting prices will grow at a slower pace in the next 12 months. Expectations of purchase price increases for goods and services also have weakened. Thus, the respondents’ assessments are in line with the economy’s deinflationary trend. Price rises for raw materials and supplies as well as energy carriers remain the most influential factors of the starting price changes and the most important dampers of enterprise profit growth. The exchange rate influence on expenses and prices has slackened (51.6% against 59.6% of the respondents in the previous quarter) due to the exchange rate stabilization achieved in the recent months.

The respondents forecast a growing need for borrowed funds. The percentage of the respondents planning on taking bank loans has enlarged (by 0.8 p.p. to 53.5%), although reference is made to the difficulties with loan accessibility. Easing of the devaluationary expectations led to a reduction in percentage of the respondents planning to take the hryvnia loans (by 1.7 p.p. to 86%). Rising interest rates for loans and enhanced collateral requirements hamper use of loans by enterprises the most of all. The influence of exchange rate fluctuations factor has dramatically decreased.

The respondents’ negative expectations of economic outlook for the next 12 months have sharply weakened. Percentage of the respondents forecasting economic downturn for the next 12 months has markedly reduced (by 26.3 p.p. to 55.4%).

Certainty with regard to the hryvnia exchange rate stability has been on the increase for the second running quarter. Percentage of the enterprises that do not expect exchange rate changes went up to 40.3% in the second quarter of 2009 against 18.4% in the previous quarter.

Inflationary expectations have fallen to the pre-crisis level: the respondents forecast an increase in the consumer prices of 15.4% vis-à-vis 20.6% in the first quarter of 2009, about a half of the enterprises (49.2%) do not expect the inflation to exceed 15% in the next 12 months. The political and economic situation remains the major price driver. The exchange rate influence on price increases has become less pronounced.

These results reflect only views of the respondents heading Ukrainian enterprises as of May 2009 and do not represent NBU assessments.