Despite ongoing hostilities and missile attacks on civilian infrastructure, businesses continued to soften their negative expectations for their economic performance and the output of Ukrainian goods and services over the next 12 months. Inflation and exchange rate expectations also improved. This is shown by the findings of a survey of top managers of companies that the NBU carried out in Q1 2023.
The business outlook index (BOI) was 91.2%, up from 83.5% in Q4 2022 (“Q4”). More optimistic views were reported by all sectors (apart from construction and trade), and for all index components.
Businesses’ macroeconomic expectations for Ukraine
Businesses markedly softened their negative expectations for the output of Ukrainian goods and services over the next 12 months. The balance of responses was (-16.7%), compared to (-32.3%) in Q4.
Companies upgraded their inflation expectations – in Q1 2023, the expected annual inflation rate was 20.7%, compared to 23.3% in the previous quarter. 46.8% of surveyed companies said that inflation would not exceed 20% over the next 12 months. Conversely, the percentage of respondents who expected that inflation would exceed 30% dropped noticeably, to 16.2%.
A total of 88.4% of respondents believe the full-scale war to be the most important inflation driver. In contrast, the impact of the exchange rate and production costs was reported to have weakened somewhat.
Respondents said they expected the hryvnia to depreciate slightly less strongly: the average UAH/USD exchange rate was projected to hit UAH 42.18 per USD 1 in 12 months (UAH 42.59 per USD 1 in the previous quarter). Some 48.3% of respondents expected that the UAH/USD exchange rate would not exceed UAH 42.00 per USD 1.
Companies’ current standings and their business outlook
Although improving for three quarters running, respondents’ views of their current financial and economic standings remained negative, the balance of responses being (-16.9%), up from (-19.3%) in Q4.
At the same time, respondents’ expectations for changes in the financial and economic standings of their companies came very close to the equilibrium level, the balance of responses being (-2.5%), up from (-11.5%) in Q4. Mining companies said they expected an improvement over the next 12 months; agricultural companies expected no changes in their financial and economic standings; the remaining respondents (apart from construction companies) softened their negative expectations.
For the first time in a year, businesses expected an increase in total sales, including in external sales, the balances of responses being 2.8% and 2.0% respectively, compared to (-7.3%) and (-6.3%) in Q4.
Respondents across most sectors expected growth in total sales, with manufacturing and mining companies being the most confident of it (with balances of responses of 12.0% and 11.1% respectively). At the same time, respondents from construction and energy and water supply companies retained their negative views.
Businesses continued to soften their negative expectations for investment spending on construction and on machinery, equipment and tools, the balances of responses being (-17.8%) and (-10.3%) respectively, compared to (-26.9%) and (-16.6%) in Q4.
Businesses that raise foreign investment have said for two quarters running that they expected an increase in this investment over the next 12 months, the balance of responses being 11.0%, up from 8.5% in Q4. The firmest expectations were reported by construction and transport and communications companies. The share of respondents who plan to raise foreign investment in the next 12 months was 21.3%, slightly down from 22.8% in the previous survey.
Although still declaring intentions to cut their staff, respondents across all sectors, for the third quarter in a row, have reported weaker intentions to do so, the balance of responses being (-16.4%), up from (-20.1%) in Q4. Mining and agricultural companies softened their expectations the most, while construction companies reported the most pessimistic views.
Respondents expected that wage costs per staff member would rise at a slightly slower pace, the balance of responses being 35.3%, compared to 39.0% in Q4.
Despite companies’ slightly firmer expectations of an increase in their borrowing needs in the near future, the percentage of companies that plan to take out bank loans was practically unchanged, at 35.4%, compared to 35.0% in Q4.
Although declining slightly, the percentage of respondents who intend to take out hryvnia loans prevailed, at 79.7%, compared to 84.9% in Q4.
High loan rates remained the main factor deterring businesses from taking out new loans (48.1% of responses). At the same time, the impact of complicated paperwork was reported to have increased by 3.0 pp, to 23.4%.
The percentage of respondents who intend to take out foreign loans was 7.4%, slightly down from 7.8% in the previous quarter.
This quarterly survey was conducted from 30 January to 28 February 2023. A total of 644 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, 21.0% were in wholesale and retail trade, 18.2% in manufacturing, 14.4% in agriculture, 13.2% in transport and communications, 7.0% in mining, 5.3% in energy and water supplies, 3.3% in construction, and 17.7% 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 as the arithmetic mean of the balances of responses regarding financial and economic standings, total sales of own products, investment spending on construction, investment spending on 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.