Businesses Report Pessimistic Performance Outlook for Two Months Running – Business Outlook Survey in June

In June, businesses reported a negative economic outlook for two months in a row. Continuing uncertainty as to how long the war will last, rising production costs due to power shortages caused by russia’s missile attacks on energy infrastructure, higher energy prices, weak investment demand, deteriorating exchange rate expectations, unfavorable labor market trends, and considerable shortages of qualified staff further worsened 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 June 2024, the BAEI was 43.6, down from 48.0 in May.

Industrial companies downgraded their economic outlook for the near future amid a worsening security situation, significant power shortages and rising production costs, the sector’s index being 45.5 in June, down from 48.8 in May. In contrast to the previous month, respondents expected a decrease in the amount of manufactured goods and the number of new orders. Respondents reported firmer expectations of a decrease in the number of new export orders, the amount of unfinished products (unfulfilled orders), and in stocks of raw materials and supplies. At the same time, industrial companies slightly upgraded their negative views about their finished goods stocks.

Trading companies remained downbeat about their economic performance on the back of a more difficult situation with power supplies, higher energy prices and worsening exchange rate expectations, the sector’s index being 46.4, down from 47.7 in May. Respondents expected a further drop in their trade turnover and the amount of goods purchased for sale, while continuing to expect a decrease in their stocks of goods for sale. They also declared intentions to cut their trade margins further.

Construction companies considerably worsened their economic performance expectations on the back of depressed investment demand, long power cuts and shortages of qualified staff, the sector’s index being 43.0 in June, down from 49.8 in May. Companies significantly downgraded their expectations for construction volumes, the number of new orders, and purchases of raw materials and supplies. At the same time, respondents remained upbeat about purchases of contractor services, despite worsening their expectations about contractor availability.

Services companies have reported the gloomiest economic outlook for two months running, downgrading their expectations of their economic performance due to outflows of qualified staff, higher costs resulting from power shortages and declining demand, the sector’s index being 39.7, down from 47.2 in May. Respondents reported significantly dimmer expectations about the amount of services provided, the number of new orders, and the amount of services that are being provided.

Industrial, trading and services companies said they expected stronger growth in purchase prices, and declared firmer intentions to raise their selling prices. Meanwhile, construction companies expected slightly weaker growth in purchase prices and reported less firm intentions to raise their selling prices.

Labor market conditions worsened. Companies across all sectors declared intentions to reduce their workforces, with the strongest intentions reported by services companies.