Despite ongoing hostilities, businesses, for the first time since the start of the full-scale war, said they expected a rebound in business activity over the next 12 months. On the back of a recovering energy system, the gradual revival of domestic demand and a stronger hryvnia, respondents expected an increase in the output of goods and services, while also reporting a positive outlook for the performance of their companies. Inflation and exchange rate expectations also improved.
The business outlook index (BOI) was 104.5%, up from 91.2% in Q1 2023 ("Q1"). More optimistic views were reported by all sectors, and for all index components.
Businesses’ Macroeconomic Expectations for Ukraine
Businesses expected a surge in the output of Ukrainian goods and services over the next 12 months, the balance of responses being 17.3%, compared to (-16.7%) in Q1. Growth was expected by all companies, regardless of their type of economic activity, business line, size in terms of staff numbers, and across most oblasts.
Inflation expectations continued to improve – in Q2 2023 the expected annual inflation rate was 15.7%, compared to 20.7% in the previous quarter. 46.6% of surveyed companies said that inflation would not exceed 15.3% over the next 12 months. 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 continued to soften their depreciation expectations – the average UAH/USD exchange rate was projected to hit UAH 40.43 per USD 1 in 12 months (UAH 42.18 per USD 1 in the previous quarter). Some 44.3% of respondents (compared to 19.5% in Q1) expected that the UAH/USD exchange rate would not exceed UAH 40.00 per USD 1 in the next 12 months.
Companies’ Current Standings and Their Business Outlook
Although improving for four quarters running, respondents’ views of their current financial and economic standings remained negative, the balance of responses being (-11.1%), up from (-16.9%) in Q1.
At the same time, for the first time in five quarters, respondents reported positive expectations for changes in the financial and economic standings of their companies, the balance of responses being 9.6%, up from (-2.5%) in Q1. An improvement was expected by all companies, regardless of their business line and size in terms of staff numbers, and across most sectors and oblasts.
Businesses reported much firmer expectations of an increase in total sales, including in external sales, the balances of responses being 14.5% and 10.9% respectively, compared to 2.8% and 2.0% in Q1. Respondents across all sectors expected growth in total sales, with construction, manufacturing and trading companies being the most confident of it (with balances of responses of 30.0%, 21.6% and 21.0% respectively).
For the first time in the last five quarters, respondents reported a positive investment outlook for machinery, equipment and tools, the balance of responses being 4.5%, compared to (-10.3%) in Q1 2023. Businesses also significantly softened their negative expectations for construction spending, the balance of responses being (-2.3%), up from (-17.8%) in Q1.
Companies that raise foreign investment continued to report expectations of investment growth over the next 12 months, the balance of responses being 15.3%, up from 11.0% in Q1 2023.The firmest expectations were reported by transport and communications and by construction companies. The share of respondents who plan to raise foreign investment over the next 12 months was 23.1%, up from 21.3% in the previous survey.
Respondents reported considerably weaker intentions to cut their workforces over the next 12 months, the balance of responses being (-3.8%), compared to (-16.4%) in Q1 2023. Respondents from transport and communications and manufacturing companies softened their negative expectations the most. Meanwhile, respondents from construction and trading companies, as well as respondents engaged in other economic activities, reported intentions to hire more staff.
Respondents expected an increase in wage costs per staff member, the balance of responses being 44.6%, compared to 35.3% in Q1.
With companies’ weaker expectations of an increase in their borrowing needs in the near future, the percentage of companies that plan to take out bank loans decreased, to 30.0%, down from 35.4% in Q1.
As before, companies that intend to take out loans prefer hryvnia loans – 79.2%, compared to 79.7% in Q1 2023.
High loan rates remained the main factor deterring businesses from taking out new loans (49.7% of responses). At the same time, the impact of the availability of other funding sources was reported to have increased most of all (by 5.5 pp, to 42.0%).
The percentage of respondents who intend to take out foreign loans was 7.3%, practically unchanged on the previous quarter (7.4%).
This survey was carried out from 2 May through 31 May 2023. A total of 660 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, 20.9% were in wholesale and retail trade, 18.2% in manufacturing, 13.9% in agriculture, 13.8% in transport and communications, 7.3% in mining, 5.2% in energy and water supplies, 3.0% in construction, and 17.7% were in other sectors; 34.2% of the respondents were large companies, 37.4% medium companies, and 30.2% small companies. The findings presented reflect only the opinions of the respondents (top managers of Ukrainian companies), and should not be considered as NBU 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.