Businesses expect a drop in the output of Ukrainian goods and services in the wake of the full-scale war, and are downbeat about their economic performance. Respondents expect that inflation will rise and the hryvnia will depreciate over the next 12 months. This is shown by the findings of a survey of top managers of companies that the NBU carried out in Q2 2022.
The business outlook index (BOI) was 72.6%, down from 108.2% in Q1 2022 (“Q1”). All index components decreased, but most of all those related to investment spending on construction and on machinery, equipment and tools.
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 over the next 12 months. The balance of responses was (-48.7%), compared to (-1.7%) in Q1.
Businesses have also downgraded their exchange rate expectations. Some 52% of respondents expected that the UAH/USD exchange rate would exceed UAH 36.00 per USD 1. The average UAH/USD exchange rate was projected to hit UAH 36.06 per USD 1 in 12 months (UAH 29.35 per USD 1 in the previous quarter).
Inflation expectations have increased – in Q2 the expected annual inflation rate was 21.5%, compared to 9.5% in the previous quarter. 58.2% of surveyed companies said that inflation would exceed 20% over the next 12 months.
A total of 93.2% of respondents believe the full-scale war to be the most important inflation driver.
Production costs (58.8%) and the exchange rate (58.6%) are also regarded as important sources of consumer price growth.
Companies’ current standings and their business outlook
Companies reported much dimmer views of their current financial and economic standings: the balance of responses was (-28.8%), compared to 6.6% in Q1.
Respondents also reported negative expectations of their financial and economic standings over the next 12 months, the balance of responses being (-17.1%), compared to 7.2% in Q1. Deterioration in financial and economic standings was expected by companies across all sectors, apart from those in the construction sector. The dimmest expectations were reported by respondents from energy and water supply (-26.7%) and transport and communications companies (-26.4%).
Businesses expected a drop in domestic and foreign sales, the balances of responses being (-19.0%) and (-25.0%) respectively, compared to 17.0% and 23.3% in Q1 2021.
Businesses downgraded their expectations about investment spending on both construction and on machinery, equipment and tools: the balances of responses were (-34.7%) and (-37.2%) respectively, compared to 14.3% and 0.9% in Q1. Businesses across all sectors reported intentions to cut their investment spending over the next 12 months.
Businesses that raise foreign investment continued to report positive, albeit low, expectations for an increase in this investment: the balance of responses was 0.7%, down from 5.3% in Q1. Growth was expected by respondents from transport and communications and energy and water supply companies, as well as by those engaged in other economic activities.
Respondents reported intentions to cut their workforces, the balance of responses being (-29.0%), down from 1.5% in the previous quarter. The gloomiest expectations were reported by respondents from construction and mining companies, the balances of responses being (-50.0%) and (-45.9%) respectively).
Respondents reported weaker expectations of a rise in wage costs per staff member over the next 12 months, the balance of responses being 17.5%, compared to 62.9% in Q1.
The percentage of companies that plan to take out bank loans dropped (to 36.9%, down from 40.9% in Q1), despite companies’ persistently high expectations of their borrowing needs in the near future.
The percentage of respondents who intend to take out hryvnia loans was 84.6%, up from 79.0% in Q1. Respondents said that lending conditions had tightened, the balance of responses being 20.6%, up from 2.1% in Q1.
Respondents said that high loan rates remained the main factor deterring them from taking out new loans (37.2%). Compared to the previous survey, the impact of this factor decreased by 15.4 pp. At the same time, the impact of companies’ uncertainty about their ability to meet their debt obligations as they fall due increased by 11.1 pp.
The percentage of respondents who intend to take out foreign loans was 10.7%, up from 7.3% in the previous quarter.
The survey was conducted from 3 May through 1 June 2022. A total of 592 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, 22.5% were in wholesale and retail trade, 19.3% in manufacturing, 15.7% in agriculture, 12.2% in transport and communications, 6.4% in mining, 5.1% in energy and water supplies, 3.0% in construction, and 15.9% 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.