Businesses Report Negative Economic Outlook – Businesses Outlook Survey in May

After reporting a positive economic outlook for two months in a row, businesses downgraded their views.

More intense hostilities and missile attacks on infrastructure, power shortages, rising production costs due to high fuel prices and growing logistics costs, weak investment demand, deteriorating exchange rate expectations, considerable shortages of qualified staff, as well as uncertainty about the further course of the war and employee mobilization conditions hampered economic activity, worsening the expectations of all of the surveyed sectors.

This is evidenced by the business activity expectations index (BAEI), which the NBU calculates on a monthly basis, apart from the forced break in March–May 2022. In May 2024, the BAEI was 48.0, down from 52.3 in April.

Industrial companies worsened their economic outlook for the near future amid high security risks, rising production costs and power shortages, the sector’s index being 48.8 in May, down from 51.7 in April. Respondents softened their positive expectations for the amount of manufactured goods and the number of new orders for products, while also expecting a drop in the number of new export orders. Respondents were more downbeat about their finished goods stocks and the amount of unfinished products (unfulfilled orders).

Trading companies also reported dimmer performance expectations on the back of growing import prices, high fuel prices and declining demand, the sector’s index being 47.7 in May, down from 51.8 in April. Respondents expected a substantial drop in their trade turnover and the amount of goods purchased for sale, while returning to expecting a decrease in their stocks of goods for sale. Trading companies declared firmer intentions to cut their trade margins.

Construction companies were pessimistic about their economic performance despite favorable weather conditions and sustained domestic demand, the sector’s index being 49.8 in May, down from 53.4 in April. Respondents said they were less optimistic about an increase in construction volumes and the number of new orders. At the same time, construction companies expected their purchases of raw materials and supplies to remain at the previous month’s level. Respondents reported gloomier expectations about the availability of contractors, while also expecting a much smaller increase in purchases of contractor services. Respondents also said the cost of these services would remain high.

Services companies reported the gloomiest economic outlook, significantly worsening expectations of their economic performance due to shortages of qualified staff, higher logistics costs and depressed demand, the sector’s index being 47.2, down from 53.1 in April. Respondents retained their positive expectations about the amount of provided services, despite weakening them significantly. At the same time, services companies were downbeat about the number of new orders for services and the amount of services being provided.

Despite continuing to report strong expectations of a rise in purchase prices, most respondents said they intended to raise their selling prices more slowly.

Labor market conditions remained difficult. As in the previous survey, only construction companies reported intentions to expand their workforces slightly. Respondents across other sectors worsened their expectations and declared intentions to reduce their workforces further, with the strongest expectations reported by services companies.