In Q1 2025, businesses continued to report a more positive economic outlook for the next 12 months. Companies were also more upbeat about investment on the back of a moderate increase in inflation expectations and the stabilization of exchange rate expectations.
The business outlook index (BOI) was 108.2%, up from 101.8% in Q4 2024 (Q4)
Respondents reported an improvement for all index components, with the strongest improvement being reported for total sales and staff numbers. A rebound in business activity was expected by companies across all sectors, business activities, sizes, and across 14 oblasts.
Respondents continued to refer to the war and its repercussions as the most crucial factor that hampered their ability to step up production. At the same time, the impact of qualified staff shortages has increased by 2.5 times over two years.
Businesses’ Macroeconomic Expectations for Ukraine
Businesses noticeably improved their expectations for the output of Ukrainian goods and services over the next 12 months, the balance of responses being 15.6%, compared to (-1.4%) in Q4.
Companies in 13 oblasts, across all economic sectors, business activities and sizes based on their staff numbers said they planned to step up production. The strongest expectations were reported by large companies, manufacturing companies, and by companies that are exporters only.
Inflation expectations strengthened slightly – in Q1 2025 the expected annual inflation rate for the next 12 months was 11.5%, compared to 10.3% in the previous quarter. The percentage of respondents who expected that inflation would exceed 10% was 60.3%.
A total of 81.6% of respondents continued to see the ongoing hostilities as the most important inflation driver. Respondents also expected an increase in the impact of the supply (availability) of money, global prices, social budgetary spending, production costs, and tax changes.
In contrast, the impact of the exchange rate has weakened for two quarters in a row, by 5.4 pp, to 70.0%.
Exchange rate expectations continued to weaken: the average UAH/USD exchange rate was expected to hit UAH 44.23 per USD 1 in 12 months (UAH 44.42 per USD 1 in the previous quarter).61.6% of respondents expected that the UAH/USD exchange rate would range between UAH 42.01 and UAH 45.00 per USD 1 over the next 12 months.
Companies’ Current Standings and Their Business Outlook
Companies were less downbeat about the current financial and economic standings of their companies, the balance of responses being (-3.4%), up from (-6.1%) in Q4.
For the first time over a year, respondents reported positive expectations about changes in the financial and economic standings of their companies over the next 12 months, the balance of responses being 4.7%, up from (-1.2%) in Q4. A more optimistic economic outlook was reported across most economic sectors, with companies in the construction and manufacturing sectors being the most optimistic. At the same time, respondents from trading, and transport and communications companies still reported gloomy expectations.
Businesses reported much firmer expectations for total sales, including for external sales, the balances of responses being 20.7% and 19.5% respectively, compared to 9.0% and 7.7% in Q4. Growth in total sales was expected across all sectors, but most of all by respondents from manufacturing and agricultural companies, and by respondents engaged in other economic activities. An increase in external sales was expected by respondents from agricultural, manufacturing, trading and transport and communications companies, as well as by respondents engaged in other economic activities.
Businesses were more upbeat about investment in machinery, equipment and tools, the balance of responses being 13.4%, compared to 9.3% in Q4. For the first time in the last three years, respondents were upbeat about their construction investment, the balance of responses being 2.7%, up from (-1.6%) in Q4.
Businesses that raise foreign investment were more confident about investment growth over the next 12 months, the balance of responses being 17.2%, up from in 10.6% Q4. The firmest expectations were reported by energy and water supply and mining companies.
The share of respondents who plan to raise foreign investment over the next 12 months was 19.2%, down from 21.6% in the previous survey.
Respondents noticeably improved their negative staff expectation for the next 12 months, the balance of responses being (-0.6%), compared to (-6.6%) in Q4.
Respondents from mining, construction, agricultural and manufacturing companies, as well as respondents engaged in other economic activities declared intentions to hire more staff. In contrast, respondents from trading, energy and water supply, and transport and communications companies continued to report gloomy staffing expectations.
Respondents expected an increase in wage costs per staff member, the balance of responses being 60.1%, compared to 56.5% in Q4.
Despite respondents reporting stronger borrowing needs in the near future (up to 38.1% of respondents in Q1, compared to 33.5% in Q4), the percentage of respondents who intended to take out bank loans was little changed, at 35.2%, compared to 35.0% in Q4.
Companies that intend to take out loans continue to prefer hryvnia loans – 80.9%, compared to 84.8% in Q4. High loan rates remained the main factor deterring businesses from taking out new loans (49.4% of responses). The percentage of respondents who cited the availability of other funding sources increased to a new high since the survey began, being 44.2%, up from 42.1% in the previous survey.
For three quarters in a row, respondents have said that lending conditions had tightened, the balance of responses being 17.3%, up from 16.3% in the previous quarter.
The percentage of respondents who intend to take out foreign loans was 7.1%, down from 8.5% in the previous quarter.
This survey was carried out from 3 February through 3 March 2025. A total of 670 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, 20.9% were in trade, 20.0% in manufacturing, 14.2% in agriculture, 13.7% in transport and communications, 5.8% in mining, 4.8% in energy and water supply, 3.1% in construction, and 17.5% in other sectors; 31.6% of the respondents were large companies, 35.7% medium companies, and 32.7% small companies.
The findings presented reflect only the opinions of the respondents (top managers of companies), and should not be considered as NBU 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, and on machinery, equipment and tools, as well as 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.