Ukrainian businesses expect that economic growth will continue and that inflation will be moderate. This is evident from the findings of the business outlook survey the NBU conducted in Q4 2019.
Despite a small decrease from the previous quarter, business activity remains rather high: the business outlook index (BOI) for the next 12 months is 112.0% (down from 115.3% the quarter before). All respondents except those from agribusiness expect a pick-up in business activity. The most optimistic projections came from companies in the mining industry and other economic activities (telecommunications, computer programming, information services, and other services). Business activity continues to be robust, propelled by companies’ optimistic projections for total sales growth, and strong expectations for their own financial and economic standings, and investment in machinery, equipment, and tools.
Business outlook for Ukraine’s macroeconomic conditions
The expected inflation rate is little changed from the previous survey Businesses project that consumer prices will grow by 7% in 12 months (up from 6.9% in Q3), which is rather close to the NBU’s medium-term inflation target (5 ± 1% pp). As before, more than half of the respondents predict the increase in consumer prices in the next 12 months will not exceed 7.5%.
Expectations for the hryvnia exchange rate continue to improve More specifically, businesses expect a UAH/USD exchange rate of 27.43 over the next 12 months. In the previous quarter, businesses expected that the UAH/USD exchange rate would stand at 27.96. Almost half of all businesses (44.1%) believe that the UAH/USD exchange rate will not exceed UAH 27.00 per USD 1.
Businesses’ expectations for growth in production of goods and services in Ukraine over the next 12 months remain rather high, with more than a third of companies (37.6%) expecting growth, yet almost half of them (46.8%) believe these indicators will remain unchanged.
Companies’ expectations about their own business
More than a third of businesses (36.6%) predict sales will grow over the next 12 months.Only 13.1% expect sales to decline. All respondents except those from construction companies expect a rise in total sales. The highest projections came from businesses in the trade and other sectors.
About 28.0% of companies expect their financial and economic standings to improve over the next 12 months, while only 9.4% expect them to worsen. An improvement in financial and economic standings is expected by companies across all sectors, apart from those in the energy and water supply sector. The most optimistic expectations were reported by respondents from trade companies.
Some 26.9% of companies anticipate growth of investment in machinery and equipment. Investment cuts are projected by 12.2% of companies. The most robust expectations of growth in investment in machinery, equipment, and tools were reported by respondents from companies in mining, energy and water supply, transportation and communications.
Layoffs are projected by 18.5% of respondents, while 16.9% expect to increase their workforce. Respondents in energy and water supply, agriculture, manufacturing, transportation and communications expect to lay off workers. Companies in other economic activities, construction, and trade, are planning to expand their staff, especially those in Volyn, Zaporizhzhia, Kyiv, Lviv, and Kharkiv oblasts, and in the city of Kyiv.
The share of businesses planning to raise the wages of their staff over the next 12 months is growing (69.2%). Meanwhile, only 2.2% of companies plan to cut wages. The strongest intentions to raise wages were reported by manufacturing companies. In terms of oblasts, the most bullish expectations were reported by businesses in Zhytomyr and Ternopil oblasts.
The share of companies planning to take out loans over the next 12 months declined to 41.9% (down from 43.4% a quarter earlier). Intentions to take out loans were most widespread among energy and water supply companies and companies in Khmelnytskyi and Poltava regions. Three quarters (75.7%) of businesses prefer hryvnia loans. The percentage of respondents intending to take out foreign currency loans edged down to 9.6% (from 10.9% in the previous quarter).
Businesses continue to cite high prices for energy, raw materials, and supplies as the main factor limiting their ability to step up production.
For reference
The business outlook survey was conducted from 4 December 2019 through 3 January 2020. A total of 697 companies in 22 regions took part in the survey (excluding the temporarily occupied territory of Crimea, and Donetsk and Luhansk oblasts).
Surveyed companies broken down by sectors: 17.6% – manufacturing, 16.9% – agriculture, 14.5% – wholesale trade, 12.9% – transport and communications, 6.7% – mining, 5.2 % – energy and water supply companies, 5.6% – retail, 2.6% – construction, 17.9% – other.
Survey results reflect only the opinions of respondents (company managers), and do not necessarily represent NBU estimates.
The business outlook index is an aggregate indicator that shows companies’ expectations of development over the next 12 months.
It is calculated as the arithmetic mean of the balances of responses regarding financial and economic standings, total sales of a company’s own products, investment spending on construction, investment spending on machinery, equipment and tools, and staff numbers. An index above 100 means that positive economic sentiment prevails in society, while an index below 100 indicates the prevalence of negative economic sentiment.