Businesses reported a guarded economic outlook for the next 12 months. Inflation expectations and investment outlook continued to improve.
The business outlook index (BOI) was 99.5%, down from 103.0% in Q1 2024 (Q1).
Respondents had dim expectations for their staff numbers and the future financial and economic standings of their companies. At the same time, companies continued to expect an increase, albeit at a slower pace, in future sales of their own products, and in investment in machinery, equipment and tools.
Respondents continued to refer to the war and its repercussions as the most crucial factor that hampered their ability to step up production. There was also a significant increase in the impact of high energy prices, high raw material and supplies prices, exchange rate fluctuations, and shortages of qualified staff.
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 (-0.3%), down from 8.5% in Q1 2024.
A decline was expected by companies across most economic sectors, except for agricultural, manufacturing, and energy and water supply companies; respondents in eight regions; small companies; companies that are exporters only, and companies that are neither exporters nor importers.
Inflation expectations have been improving for seven quarters in a row – in Q2 2024 the expected annual inflation rate for the next 12 months was 9.0%, compared to 11.0% in the previous quarter. The percentage of respondents who expected that inflation would not exceed 10% was 62.8%, up from 48.4% in Q1.
A total of 84.5% of respondents continued to see ongoing hostilities as the most important inflation driver. The impact of the exchange rate was reported to have increased noticeably, by 8.9 pp, to 68.3%.
Respondents worsened their depreciation expectations – the average UAH/USD exchange rate was projected to hit UAH 41.61 per USD 1 in 12 months (UAH 40.44 per USD 1 in the previous quarter). The percentage of respondents who expected that the UAH/USD exchange rate would range between UAH 42.1 and UAH 44.0 per USD 1 over the next 12 months was 35.3%, up from 24.2% in the previous quarter.
Companies’ current standings and their business outlook
Respondents said that the current financial and economic standings of their companies had deteriorated, the balance of responses was (-4.3%), down from (-1.4%) in Q1.
Respondents reported gloomier expectations for the financial and economic standings of their companies over the next 12 months, the balance of responses being (-0.2%), down from 3.7% in Q1. A deterioration was expected by respondents from transport and communications, trading and mining companies, as well as by those engaged in other economic activities. At the same time, construction, agricultural and manufacturing companies reported optimistic views.
Businesses continued to report positive expectations about total sales, including external sales, the balances of responses being 8.7% and 11.0% respectively, compared to 10.6% and 6.8% in Q1. Respondents across most sectors expected growth in total sales, with construction, agricultural and manufacturing companies being the most confident of it (with balances of responses of 20.0%, 18.7% and 14.8% respectively). An increase in external sales was also expected by respondents across most sectors, apart from the trade and construction sectors.
Respondents continued to report a positive investment outlook for machinery, equipment and tools, the balance of responses being 5.4%, compared to 8.3% in Q1. At the same time, respondents worsened their expectations for construction investment, the balance of responses being (-5.5%), compared to (-1.5%) in Q1.
Businesses that raise foreign investment expected this investment to rise at a faster pace over the next 12 months, the balance of responses being 19.4%, up from 16.1% in Q1. The firmest expectations were reported by construction, energy and water supply and mining companies.
The share of respondents who plan to raise foreign investment over the next 12 months was 21.9%, down from 22.8% in the previous survey.
Respondents declared stronger intentions to cut their workforces over the next 12 months, the balance of responses being (-10.7%), compared to (-6.3%) in Q1. Negative expectations were reported by respondents across all sectors.
Mining companies have reported the most pessimistic employment outlook for three quarters running.
Respondents expected weaker growth in wage costs per staff member, the balance of responses being 54.8%, compared to 62.6% in Q1.
With companies’ firmer expectations of an increase in their borrowing needs in the near future, the percentage of companies that plan to take out bank loans grew to 36.4%, up from 34.9 in Q1.
Companies that intend to take out loans continue to prefer hryvnia loans – 81.6%, compared to 81.1% in Q1.
High loan rates remained the main factor deterring businesses from taking out new loans (46.2% of responses). The impact of the availability of other funding sources was reported to have decreased slightly (by 1.0 pp, to 41.1%), while that of complicated paperwork was reported to have increased significantly (by 4.1 pp, to 23.6%).
The percentage of respondents who intend to take out foreign loans was 7.7%, unchanged on the previous quarter.
This survey was carried out from 30 April through 27 May 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 wholesale and retail trade, 18.6% in manufacturing, 14.2% in agriculture, 13.0% in transport and communications, 6.7% in mining, 4.8% in energy and water supplies, 3.0% in construction, and 18.2% were in other sectors; 30.2% of the respondents were large companies, 37.4% medium companies, and 32.4% small companies.
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 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.