Businesses Downgrade Their Expectations for Their Economic Performance – Business Outlook Survey in January

In January, businesses worsened their expectations of their current and future economic performance. The increased intensity of hostilities, uncertainty over the timing and amount of external financial assistance, the blockade of Ukraine’s western borders, the rising production cost of boosting cyber security, shortages of skilled workers, and a seasonal weakening of economic activity at the beginning of the year resulted in a more pessimistic economic outlook across all 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 January 2024, the BAEI was 41.0, down from 45.7 in December.

Industrial companies reported more pessimistic expectations for their economic performance amid rising pressures from production costs and logistical hurdles with crossing the border with Western countries, the sector’s index being 43.7 in January, down from 46.9 in December. Respondents significantly worsened their expectations for the amount of manufactured goods and the number of new orders for products, while also expecting a further decline in their stocks of raw materials and supplies. Respondents remained downbeat about the number of new export orders and the amount of unfinished products. They also reported dimmer expectations for their finished goods stocks.

For two months in a row, trading companies have been reporting a more pessimistic economic outlook amid higher import prices because of the blockade of Ukraine’s western borders, high fuel prices and weaker demand, the sector’s index was 38.9 in January, down from 46.9 in December. Respondents were most pessimistic about trade turnover and the amount of goods purchased for sale, while also expecting a sizeable increase in stocks of goods purchased for sale. Trading companies significantly softened their expectations for a rise in the cost of goods purchased for sale and expected a further increase in supplier prices. They also declared intentions to cut their trade margins further.

Services companies once again worsened their negative expectations of their current economic performance amid falling demand because of higher prices, and security risks, the sector’s index was 40.4, down from 44.0 in December. Respondents expected a further drop in the amount of services provided, the number of new orders, and the amount of services that are being provided.

Respondents from the construction sector have for four months in a row reported the most pessimistic expectations for their performance among other economic sectors. The reasons for this were fierce fighting, shortages of qualified staff and seasonal factors. The sector’s index was 31.9, down from 42.1 in December. Companies significantly downgraded their expectations for construction volumes, the number of new orders, and purchases of raw materials and supplies. Respondents were more downbeat about the availability of contractors. Despite slower growth in the cost of contractor services, respondents continued to report intentions to purchase fewer of these services.

Companies across all sectors declared intentions to raise their selling prices on the back of firmer expectations of more rapid growth in purchase prices.

Staff expectations have worsened. Companies across all sectors declared intentions to reduce their workforces, with the strongest intentions reported by construction companies.