In spite of the war, companies softened their expectations of a drop in the output of Ukrainian goods and services, while also reporting a more optimistic economic outlook. At the same time, respondents said they expected that inflation would rise and the hryvnia would depreciate over the next 12 months. This is evidenced by the findings of a survey of company top managers that the NBU carried out in Q3 2022.
The business outlook index (BOI) was 79.5%, up from 72.6% in Q2 2022. Respondents improved their still negative expectations for all index components, with the most noticeable improvement being for total sales. Companies across most oblasts and economic sectors softened their negative expectations.
At the same time, respondents across all sectors continued to expect reductions in their workforces.
Businesses’ Macroeconomic Expectations for Ukraine
Companies expected the output of Ukrainian goods and services to decline more slowly over the next 12 months. The balance of responses was (-37.9%), compared to (-48.7%) in Q2.
Businesses have worsened their exchange rate expectations. Some 67% of respondents expected that the UAH/USD exchange rate would hit or even exceed UAH 44.00 per USD 1. The average UAH/USD exchange rate was projected to reach UAH 41.93 per USD 1 in 12 months (UAH 36.06 per USD 1 in the previous quarter).
Inflation expectations have increased – in Q3 the expected annual inflation rate was 25.2%, compared to 21.7%in the previous quarter. 69.0% of surveyed companies said that inflation would not exceed 30% over the next 12 months.
A total of 92.2% of respondents believe the full-scale war to be the most important inflation driver.
The impact of the exchange rate factor was reported to have increased on the previous quarter.
Companies’ current standings and their business outlook
Companies were less downbeat about their current financial and economic standings than in the previous quarter, the balance of expectations being (-21.8%), up from (-28.8%) in Q2.
Respondents somewhat upgraded their expectations of their financial and economic standings over the next 12 months, the balance of responses being (-15.1%), compared to (-17.1%) in Q2. Although reporting a slight improvement, companies across all sectors expected their financial and economic standings to deteriorate. The gloomiest expectations were reported by respondents from mining and construction companies, the balances of responses being (-33.3%) and (-26.3%) respectively.
Businesses were more optimistic about their total sales, including external sales. The expected drop in total sales decreased by 2.7 times compared to the previous survey. Agricultural and manufacturing companies expected an increase in total production.
For two quarters in a row, businesses have reported negative expectations for investment spending on construction and on machinery, equipment and tools – the balance of responses being (-29.3%) and (-25.3%) respectively, compared to (-37.2%) and (-34.7%) in Q2 2022.
Businesses that raise foreign investment were downbeat about foreign investment growth over the next 12 months, the balance of responses being (-1.4%), down from 0.7% in Q2. At the same time, transport and communications and energy and water supply companies expected a rise in foreign investment. The share of respondents who plan to raise foreign investment in the next 12 months was 22.2%, down from 24.1% in the previous survey).
Respondents reported intentions to cut their workforces, albeit at a slower pace, the balance of responses being (-25.5%), up from (-29.0%) in the previous quarter. The gloomiest expectations were reported by respondents from mining and transport and communications companies, the balances of responses being (-53.8%) and (-32.9%) respectively).
Respondents reported stronger expectations of a rise in wage costs per staff member over the next 12 months, the balance of responses being 33.5%, compared to 17.5% in Q2.
The percentage of companies that plan to take out bank loans grew (to 40.2%, up from 36.9% in Q2) on the back of companies’ firmer expectations of an increase in their borrowing needs in the near future.
The percentage of respondents who intend to take out hryvnia loans was 86.3%, up from 84.6% in Q2. Respondents said that lending conditions had tightened, the balance of responses being 38.6%, up from 20.6% in Q2.
Respondents said that high loan rates remained the main factor deterring them from taking out new loans (47.2%). Compared to the previous survey, the impact of this factor increased by 10.0 pp.
The percentage of respondents who intend to take out foreign loans was 9.5%, down from 10.7% in the previous quarter.
This quarterly survey was conducted from 1 August to 31 August 2022. A total of 642 companies in 21 oblasts took part in the survey (excluding the temporarily occupied territory of Crimea, as well as Donetsk, Luhansk and Kherson oblasts). Of the businesses polled, 21.2% were in wholesale and retail trade, 18.2% in manufacturing, 14.6% in agriculture, 13.2% in transport and communications, 6.4% in mining, 5.1% in energy and water supplies, 3.0% in construction, and 18.2% were in other sectors. The findings presented reflect only the opinions of the respondents (top managers of Ukrainian companies), and should not be considered as NBU forecasts or assessments.
The business outlook index is an aggregated indicator for companies’ performance expectations over the next 12 months. It is calculated on the basis of survey findings as the arithmetic mean of the balances of responses regarding companies’ financial and economic standings, total sales of their own products, investment spending on construction, machinery, equipment and tools, and staff numbers. An index above 100 indicates that positive economic sentiment prevails in society, while an index below 100 shows that negative economic sentiment prevails.