Despite there being hostilities and terrorist attacks, businesses somewhat softened their negative expectations for the output of Ukrainian goods and services over the next 12 months. At the same time, companies have been reporting less gloomy outlooks for their future business activity for two quarters running. Respondents worsened their depreciation expectations, while improving their inflation expectations. This is shown by the findings of a survey of top managers of companies that the NBU carried out in Q4 2022.
The business outlook index (BOI) was 83.5%, up from 79.5% in Q3 2022 (“Q3”). The slight improvement in the index resulted mainly from a less pessimistic outlook for investment spending and staff numbers.
Businesses’ Macroeconomic Expectations for Ukraine
Businesses softened their negative expectations for the output of Ukrainian goods and services over the next 12 months. The balance of responses was (-32.3%), compared to (-37.9%) in Q3.
Companies improved their inflation expectations – in Q4 2022 the expected annual inflation rate was 23.3%, compared to 25.2% in the previous quarter. 71.8% of surveyed companies said that inflation would not exceed 30% over the next 12 months.
A total of 89.2% of respondents believe the full-scale war to be the most important inflation driver. The impact of production costs was said to have increased significantly.
Respondents reported stronger depreciation expectations: the percentage of those who expected the exchange rate to hover between UAH 38.0 and USD 40.0 per USD 1, almost halved. The average UAH/USD exchange rate was projected to hit UAH 42.59 per USD 1 in 12 months (UAH 41.93 per USD 1 in the previous quarter).
Companies’ current standings and their business outlook
Although improving for two quarters running, respondents’ views of their current financial and economic standings remained negative, the balance of responses being (-19.3%), up from (-21.8%) in Q3.
Respondents softened their still negative expectations for the financial and economic standings of their companies over the next 12 months, the balance of responses being (-11.5%), up from (-15.1%) in Q3. Although reporting a slight improvement, companies across all sectors, apart from the construction sector, expected their financial and economic standings to deteriorate. The gloomiest expectations were reported by respondents from energy and water supply and mining companies, the balances of responses being (-32.3%) and (-29.3%) respectively. Meanwhile, construction companies expected their standings to remain unchanged over the next 12 months.
Businesses continued to expect a drop in total sales, including external sales. Only trading companies expected an increase in total sales. Respondents from the mining industry markedly improved their still negative expectations of total sales, including of external sales.
For three quarters in a row, businesses have reported negative expectations for investment spending on construction and on machinery, equipment and tools, the balances of responses beІing (-26.9%) and (-16.6%) respectively, compared to (-29.3%) and (-25.3%) respectively in Q3.
Businesses that raise foreign investment said they expected an increase in this investment over the next 12 months, the balance of responses being 8.5%, up from (-1.4%) in Q3 2022. The firmest expectations were reported by energy and water supply, transport and communications and agricultural companies. The share of respondents who plan to raise foreign investment in the next 12 months was 22.8%, up from 22.2% in the previous survey.
For two quarters running, respondents have declared weaker intentions to cut their staff over the next 12 months, the balance of responses being (-20.1%), compared to (-25.5%) in Q3 2022. The gloomiest expectations were reported by respondents from mining (-40.0%), transport and communications (-28.9%) and agricultural (-26.1%) companies.
For two quarters in a row, respondents have reported expectations of a rise in wage costs per staff member over the next 12 months, the balance of responses being 39.0%, compared to 33.5% in Q3.
The percentage of companies that plan to take out bank loans dropped (to 35.0%, down from 40.2% in Q3) on the back of companies’ weaker expectations for their borrowing needs in the near future.
As before, companies that intend to take out loans prefer hryvnia loans – 84.9% compared to 86.3 in Q3 2022.
High loan rates remain the main factor deterring businesses from taking out new loans (49.5% of responses). Compared to the previous survey, the impact of this factor increased by 2.3 pp.
The percentage of respondents who intend to take out foreign loans was 7.8%, down from 9.5% in the previous quarter.
This survey was carried out between 31 October and 30 November 2022. A total of 637 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, 21.2% were in wholesale and retail trade, 19.3% in manufacturing, 14.1% in agriculture, 13.0% in transport and communications, 6.6% in mining, 4.9% in energy and water supplies, 3.0% in construction, and 17.9% were in other 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.