Businesses improved their expectations of economic growth for the first time since Q1 2020. Performance expectations became more healthy. Respondents also expected slower inflation and softer hryvnia depreciation over the next 12 months. This is shown by the findings of a survey of top managers of companies that the NBU carried out in Q1 2021.
The business outlook index returned to positive terrain, hitting 108.4%.
The improvement in the index mainly resulted from respondents’ high expectations for total sales, their financial and economic standings, investment in machinery, equipment and tools, and construction investment.
Businesses’ Macroeconomic Expectations for Ukraine
Companies reported firmer expectations of an increase in the output of Ukrainian goods and services over the next 12 months. The balance of responses was 5.6%, up from (-24.4%) in Q4 2020.
Companies expected lower inflation –in Q1 the expected annual inflation rate was 7.7%, compared to 7.9%in the previous quarter.
Almost half of the surveyed companies said that inflation would not exceed 7.5%. That said, one out of three respondents expected the inflation rate to be higher than 10.0%. About 70% of respondents cited higher production costs as an inflation driver. Respondents said that the impact of the exchange rate on inflation had become significantly less pronounced, with 59.2% of respondents citing this factor as important, compared to 71.9% in the previous survey.
Depreciation expectations also decreased. The average UAH/USD exchange rate was projected to hit UAH 29.15 per USD 1 in 12 months (UAH 29.68 per USD 1 in the previous quarter). Over 37% of companies believe that the exchange rate will hover between UAH 29.01 per USD 1 and UAH 30.00 per USD 1.
Respondents’ Expectations of Their Business Performance
Respondents said they expected a noticeable improvement in their financial and economic standings over the next 12 months, the balance of responses being 12.7%, compared to 1.3% in Q4 2020.
The highest expectations were reported by respondents from the agricultural sector (with a balance of responses of 25.5%).
Most respondents expected their financial and economic standings to improve. Only those from energy and water supply companies expected no change in their financial and economic standings over the next 12 months.
Businesses expected a rise in total sales, including external sales. Optimistic views prevailed across all sectors, apart from the energy and water supply sector. The balance of responses was 18.0%, up from 7.1% in Q4 2020. Manufacturing companies had the most robust expectations (27.2%).
Businesses reported firmer expectations of an increase in investment in machinery, equipment and tools, the balance of responses being 11.7%, compared to 3.8% in Q4 2020. Respondents expected an increase in construction investment over the next 12 months for the first time since Q2 2020: the balance of responses was 1.4%, compared to (-4.5%) in Q4 2020.
Companies that attract foreign investment continue to report stronger expectations of an increase in foreign investment, the balance of responses being 10.4%, up from 7.0% in Q4 2020.
Respondents softened their intentions to cut staff, the balance of responses being (-1.9%), up from (-9.9%) in the previous quarter. Respondents from trading and mining companies even reported intentions to hire more staff, the balances of responses being 10.1% and 4.3% respectively.
Most companies (62.9%) plan to raise the wages of their workers over the next 12 months. Only 2% of companies said they were planning to cut the wages of their workers (compared to 3.7% in Q4 2020).
The percentage of companies that plan to take out domestic loans over the next 12 months was 39.3%, down from 41.7% in the previous quarter. Most respondents (78.9%) as ever prefer hryvnia loans. Meanwhile, there was an increase in the percentage of companies that plan to take out foreign loans, to 8.7%, from 6.9%. Companies cited high loan rates (55.9% of respondents) and collateral requirements (40.9%) as the main factors that deterred them from taking out loans.
This survey was carried out from 3 February through 3 March 2021. A total of 687 companies in 22 oblasts took part in the survey (excluding the temporarily occupied territory of Crimea, as well as Donetsk and Luhansk oblasts).
Out of the polled companies 18.3% were manufacturing companies, 16.0% wholesale companies, 15.0% agricultural companies, 13.2% transport and communications companies, 6.8% mining companies, 4.8% electricity and water supply companies, 4.5% retail companies, 3.1% construction companies, and 18.2% companies from other economic sectors.
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 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