Businesses Weaken Their Expectations for Their Economic Performance for the Season – Business Outlook Survey in December

In December, businesses continued to downgrade their performance expectations. The worsening security situation, more intense missile and drone attacks on energy facilities and the long time required to repair these facilities, further growth in energy, labor and logistics costs for businesses, accelerating inflation, declining investment demand, a shortage of skilled workers, and seasonal factors restrained economic activity and weakened the expectations of all polled sectors. This is evidenced by the business activity expectations index (BAEI), which the NBU calculates on a monthly basis, apart from the forced break in March–May 2022. 

In December 2024, the BAEI was 45.9, down from 47.2 in November, being practically at the level of December 2023 (45.7).

In contrast to the previous month, trading companies reported cautious performance expectations in the face of difficult security conditions and power cuts, the sector’s index being 49.9 in December, compared to 51.4 in November and 46.9 in December 2023. Respondents were less optimistic about an increase in their trade turnovers, reported modest expectations about their purchases of goods for sale, while also downgrading their expectations about their stocks of goods for sale. Respondents continued to report intentions to cut their trade margins.

Industrial companies reported more guarded expectations about their current performance on the back of power cuts, shortages of qualified staff, and higher production costs, the sector’s index being 44.6 in December, compared to 46.7 in November and 46.9 in December 2023. Respondents were more downbeat about the amount of manufactured goods, the number of new orders for products, including export orders, and the amount of unfinished products. Industrial companies were more pessimistic about their finished goods stocks and their stocks of raw materials and supplies.

Services companies also reported a weaker economic outlook, amid prolonged power cuts, shortages of qualified staff and higher business costs, the sector’s DI being 44.5 in December, compared to 44.8 in November and 44.0 in December 2023. Respondents expected a further drop in the amount of services provided, the number of new orders for services, and in the amount of services that are being provided.

Due to the seasonal nature of construction work and a decline in investment demand, construction companies have reported the most pessimistic economic outlook for two months in a row, the sector’s index being 43.4 in December, compared to 43.6 in November and 42.1 in December 2023. Respondents expected a further drop in construction volumes, the number of new orders, and in purchases of raw materials and supplies. Companies improved their expectations about purchases of contractor services, despite stronger negative expectations about contractors’ availability and faster growth in the cost of contractor services.

Construction and services companies expected that purchase prices would grow at a faster pace. They also declared stronger intentions to raise their selling prices. In contrast, industrial and trading companies intended to raise their selling prices more slowly on the back of weaker growth in purchase prices.

Despite a slight improvement in employment expectations, labor market conditions remained challenging. All surveyed sectors reported intentions to reduce their workforces. Construction, trading and services companies intended to lay off their staff at a slower pace, while industrial companies intended to cut their staff at a slightly faster pace.