Companies have, for two quarters in a row, improved their expectations of their economic performance for the next 12 months and retained a positive investment outlook, but still expect a moderate rise in inflation and the exchange rate.
The business outlook index (BOI) was 101.8%, up from 100.6% in Q3 2024 (Q3)
Companies remained upbeat about total sales and reported stronger expectations of an increase in investment in machinery, equipment and tools, while improving slightly their negative expectations for construction spending and staff numbers. At the same time, respondents reported dimmer expectations about the future financial and economic standings of their companies.
Respondents continued to refer to the war and its repercussions as the most crucial factor that hampered their ability to step up production.
Businesses’ Macroeconomic Expectations for Ukraine
Respondents reported guarded expectations for the output of goods and services over the next 12 months, the balance of responses being (-1.4%), down from 3.7% in Q3.
A decrease in output was expected by respondents from mining, construction, trading, and transport and communications companies, as well as by respondents engaged in other economic activities; respondents in 10 oblasts; small companies; companies that are importers only, and companies that are neither exporters nor importers. At the same time, manufacturing, agricultural, and energy and water supply companies; large and medium companies; and companies that are both exporters and importers continued to expect growth in their output.
Inflation expectations strengthened further – in Q4 2024 the expected annual inflation rate for the next 12 months was 10.3%, compared to 9.7% in the previous quarter. The percentage of respondents who expected that inflation would not exceed 10% was 46.3%, down from 54.4% in Q3.
A total of 82.9% of respondents continued to see the ongoing hostilities as the most important inflation driver. The impact of tax changes was reported to have increased most of all (by 4.4 pp, to 42.3%). In contrast, the impact of the exchange rate weakened, by 5.1 pp, to 70.3%.
Respondents said they expected the hryvnia to depreciate more strongly: the average UAH/USD exchange rate was expected to hit UAH 44.42 per USD 1 in 12 months (UAH 43.72 per USD 1 in the previous quarter). 68.8% of respondents expected that the UAH/USD exchange rate would range between UAH 42.1 and UAH 46.0 per USD 1 over the next 12 months.
Companies’ Current Standings and Their Business Outlook
Companies remained downbeat about their current financial and economic standings, the balance of responses being (-6.1%), down from (-6.0%) in Q3.
Respondents reported guarded expectations about changes in the financial and economic standings of their companies over the next 12 months, the balance of responses being (-1.2%), down from (-0.9%) in Q3. More negative views were reported by respondents from mining, construction, trading and transport and communications companies, as well as by respondents engaged in other economic activities. At the same time, manufacturing, agricultural and energy and water supply companies reported optimistic views.
Businesses continued to expect an increase in total sales, including in external sales, the balances of responses being 9.0% and 7.7% respectively, compared to 10.5% and 11.2% in Q3.
Growth in total sales was expected across most sectors (apart from construction and energy and water supply), and most of all by respondents from manufacturing and agricultural companies and by respondents engaged in other economic activities, the balances of responses being 20.7%, 15.5% and 9.6% respectively. An increase in external sales was expected by respondents from energy and water supply, manufacturing and agricultural companies, as well as by respondents engaged in other economic activities.
Respondents reported a more positive investment outlook for machinery, equipment and tools, the balance of responses being 9.3%, up from 7.5% in Q3. At the same time, respondents reported less pessimistic expectations for construction investment, the balance of responses being (-1.6%), up from (-3.2%) in Q3.
Businesses that raise foreign investment continued to report expectations of investment growth over the next 12 months, the balance of responses being 10.6%, down from 15.6% in Q3. The firmest expectations were reported by respondents from energy and water supply, mining and agricultural companies, as well as by respondents engaged in other economic activities. In contrast, trading companies expected a decrease in foreign investment over the next 12 months.
The share of respondents who plan to raise foreign investment over the next 12 months was 21.6%, up from 18.8% in the previous survey.
Most economic sectors, apart from construction and energy and water supply, lessened their negative employment outlook for the next 12 months, the balance of responses being (-6.6%), up from (-10.9%) in Q3.
Respondents expected more rapid growth in wage costs per staff member, the balance of responses being 56.5%, compared to 52.9% in Q3.
Despite there being expectations of stronger borrowing needs in the near future (to 33.5% of respondents in Q4, up from 30.4% in Q3), the percentage of respondents who intended to take out bank loans was little changed, at 35.0%, compared to 34.8% in Q3.
Companies that intend to take out loans prefer hryvnia loans – 84.8%, compared to 81.9% in Q3. High loan rates remained the main factor deterring businesses from taking out new loans (49.7% of responses). The percentage of respondents who cited the availability of other funding sources was 42.1%, up from 40.0% in the previous survey. At the same time, the impact of collateral requirements, complicated paperwork and exchange rate fluctuations has weakened.
For two quarters in a row, respondents have said that lending conditions had tightened, the balance of responses being 16.3%, up from 15.4% in the previous quarter.
The percentage of respondents who intend to take out foreign loans was 8.5%, up from 8.2% in the previous survey.
This survey was carried out from 31 October through 29 November 2024. A total of 660 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, 21.4% were in trade, 18.5% in manufacturing, 14.8% in agriculture, 13.5% in transport and communications, 6.8% in mining, 4.7% in energy and water supply, 2.9% in construction, and 17.4% in other sectors; 29.4% of the respondents were large companies, 36.8% medium companies, and 33.8% small companies.
The findings presented reflect only the opinions of the respondents (top managers of companies), and should not be considered as NBU 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, and on machinery, equipment and tools, as well as regarding 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.