Businesses downgraded their expectations of an increase in the output of Ukrainian goods and services. With the gradual improvement of respondents’ views about the current standings of their companies, they retain an optimistic performance outlook. In spite of reporting stronger inflation expectations, companies expect the hryvnia exchange rate to strengthen 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 Q4 2021.
The business outlook index (BOI) was 112.1%, compared to 114.3% in Q3. The slight decrease in the index resulted from respondents’ lower, but still positive, expectations for total sales, investment in machinery, equipment and tools, and the financial and economic standings of their companies. Respondents have been declaring intentions to take on more staff for two quarters running.
Businesses’ Macroeconomic Expectations for Ukraine
Companies expect the output of Ukrainian goods and services to grow moderately over the next 12 months. The balance of responses was 8.3%, down from 21.5% in Q3 2021.
Businesses have also upgraded their exchange rate expectations for four quarters running. The average UAH/USD exchange rate was projected to hit UAH 28.15 per USD 1 in 12 months (UAH 28.50 per USD 1 in the previous quarter). The percentage of respondents who believe that the exchange rate will not exceed UAH 28.00 per USD 1 moved to 50.5%, up from 35.3%.
Inflation expectations have been worsening for two quarters running –in Q4 the expected annual inflation rate was 8.7%, compared to 7.8%in the previous quarter. The percentage of respondents who believe that inflation will exceed 7.5% increased to 61.9%, up from 51.3%. Some 79.9% of respondents (compared to 75.1% in Q3) cited production costs as the main inflation driver. The impact of the global price factor increased significantly: with 43.0% of respondents quoting it (compared to 35.1%).
The impact of the exchange rate on inflation has decreased for four quarters running, with 40.0% of respondents citing this, compared to 45.1% in the previous survey.
Companies’ current standings and expectations of their business performance
Companies continued to describe the current financial and economic standings of their companies as good: the balance of responses was 7.6%, up from 7.0% in Q3.
Respondents also continued to report positive expectations of their financial and economic standings over the next 12 months, the balance of responses being 9.7%, compared to 12.7% in Q3. The firmest expectations were reported by trading and manufacturing companies (with balances of responses of 16.9% and 11.5% respectively). An improvement in financial and economic standings was expected by companies across all sectors, apart from those in the energy and water supply sector (these respondents expected no changes).
Businesses expected a further increase in domestic and foreign sales, the balances of responses being 21.8% and 20.6% respectively, compared to 27.7% and 23.5% in Q3 2021. Sales growth was expected by respondents across all economic sectors (apart from the construction sector – these respondents expected no changes).
Businesses remained upbeat about their investment in machinery, equipment and tools and about their construction investment, the balances of responses being 19.1% and 6.9% respectively, compared to 19.3% and 9.7% in Q3. Businesses in the vast majority of sectors predicted growth in investment spending over the next 12 months.
For six quarters running, businesses that raise foreign investments have upgraded their expectations for an increase in these investments: the balance of responses was 18.6%, up from 15.6% in Q3. At the same time, the share of respondents who planned to raise foreign investments over the next 12 months declined somewhat, to 21.4%, down from 23.4% in the previous survey.
Respondents have reported intentions to expand their workforces for two quarters running, the balance of responses being 2.9%, up from 2.2% in the previous quarter. Respondents from trading and mining companies, those engaged in other activities and those from construction and transport and communications companies said they intended to hire more staff. In contrast, respondents from agricultural and manufacturing companies reported intentions to cut their workforces.
Companies reported still firmer intentions to raise wages over the next 12 months, the balance of responses being 68.6%, compared to 61.4% in Q3 2021. Only 1.6% of surveyed businesses said they were ready to cut wages, up from 0.9% of respondents in the previous survey.
The percentage of companies that plan to take out bank loans dropped (to 38.5%, from 40.4% in Q3) on the back of companies’ somewhat lower expectations of their borrowing needs in the near future. As usual, most respondents intend to take out hryvnia loans – 77.2%, down from 77.4% in the previous survey. The difference between the percentages of respondents reporting tighter lending conditions, and those reporting eased lending conditions has been decreasing for six quarters in a row. Respondents said that high loan rates remained the main factor that deterred them from taking out new loans. More than a third of respondents (34.9%) said they would use funding sources other than bank loans. The percentage of respondents who intended to take out foreign loans, at 7.6%, was practically unchanged on the previous quarter (7.2%).
This quarterly survey was conducted from 3 November through 1 December 2021. A total of 688 companies in 22 oblasts took part in the survey (excluding the temporarily occupied territory of Crimea, as well as Donetsk and Luhansk oblasts). Of the businesses polled, 20.8% were in wholesale and retail trade, 18.3% in manufacturing, 14.7% in agriculture, 13.2% in transport and communications, 6.7% in mining, 4.5% in energy and water supplies, 3.2% in construction, and 18.6% were in other sectors. This survey only reflects the opinions of respondents (top managers of Ukrainian companies), and does not represent the NBU’s forecasts or estimates.
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.