Ukrainian companies have improved expectations of economic growth in Ukraine, while their inflation expectations have softened significantly compared to Q2 2019. This is evident from the findings of the business outlook survey the NBU conducted in Q3 2019.
Companies’ business activity remains high: the business outlook index (BOI) for the next 12 months is 115.3% (down from 117.8% in Q2). Respondents across all sectors expect a pick-up in business activity. Respondents said that economic activity continued to pick up, propelled by companies’ stronger expectations of investment spending on construction, and solid prospects both for total sales and businesses’ own financial and economic standings.
Businesses’ expectations for Ukraine’s macroeconomic conditions
Inflation expectations have improved for three quarters running.Overall, the inflation rate is expected to hit 6.9% over the next 12 months, compared to expectations of 7.7% in Q2 and 9% in Q1. There was a significant increase in the percentage of respondents who said consumer prices would not rise by more than 7.5% over the next 12 months, to 54.5%, up from 45.5% in Q2. As before, higher production costs were cited as the main source of price growth.
Devaluation expectations continue to decline amid sustained favorable conditions on the FX market (resulting, among other things, from new fundamental factors – foreign purchases of the government’s hryvnia-denominated bonds and the ongoing rises in the crop yield reported by the agricultural sector).More specifically, over the next 12 months, businesses expect a UAH/USD exchange rate of 27.96. In the previous quarter, businesses expected a UAH/USD exchange rate of 28.82. Almost a third of companies (32.3%) said that the UAH/USD exchange rate would not exceed UAH 27.00 per USD 1.
Businesses continue to report stronger expectations of an increase in the output of Ukrainian goods and services over the next 12 months. Already 39.5% of companies expect output to increase at a faster pace (up from 38.2% in Q2), while a drop in output is expected by only 9.1% of respondents. Overall, growth is expected by companies across all main economic activities, but most of all by transportation companies.
Companies’ expectations about their own business
Over a third of companies surveyed (38.6%) expect their financial and economic standings to improve over the next 12 months, while only 11.5% expect it to worsen. Bullish expectations were reported by companies across all economic activities, apart from energy and water supply companies.
A total of 28.3% of businesses project that sales will grow over the next 12 months.Only 8.3% expect sales to decline. This view was particularly prevalent among companies in the manufacturing sector.
Some 28.9% of respondents anticipate growth of investment in machinery and equipment. 11.1% of companies expect a cut in investment. The most robust expectations of growth in investment in machinery, equipment and tools were reported by respondents from transport and communications companies.
One out of six companies (16.7%) reported plans to take on staff, while 14.5% of companies reported intentions to cut staff. The most optimistic views were concentrated among companies in the construction, trade, and transport and communications sectors.
The majority of businesses (64.1%) reported plans to raise the wages of their staff over the next 12 months.Nevertheless, given the sizeable increase in real wages seen in Ukraine in recent years, the number of companies planning to raise wages has been on the decline. Only 2.1% of companies plan to cut wages. The strongest intentions to raise wages were reported by manufacturing companies. In terms of regions, the most bullish expectations were reported by businesses in Zhytomyr and Volyn oblasts.
The share of companies planning to take out loans over the next 12 months was 43.4%, up from 41.5% a quarter earlier.As before, intentions to take out loans were most widespread among manufacturing companies and companies in Ternopil region. Despite there being some increase in the percentage of businesses planning to take out foreign currency loans, three fourths (75.5%) of companies still prefer hryvnia loans. The percentage of respondents who intend to take out foreign loans continues to rise, to 10.9% compared to 10.4% in the previous quarter.
Businesses continue to cite high energy, raw material and supplies prices as the main factor limiting their ability to step up production.
For reference:
This survey was conducted from 5 August through 3 September 2019. A total of 690 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: 17.7% – manufacturing, 17% – agriculture, 14.9% – wholesale trade, 13.3% – transport and communications, 7% – mining, 5.1 % – energy and water supply companies, 4.6% – retail, 2.6% – construction, 17.8% – 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.