Business Activity Expectations Index Almost Reaches Its Neutral Level – Business Outlook Survey in October

In October, businesses continued to upgrade their performance expectations. An optimistic outlook for international financing, reviving consumer demand, the stable situation in the energy sector, a sufficient supply of goods, and favorable weather conditions positively affected business expectations. At the same time, more intense missile and drone attacks on port infrastructure, the risk of further terrorist attacks against energy facilities, rising business costs for energy, labor and logistics, higher fuel prices due to increased excise duty rates, shortages of qualified staff, and accelerating inflation remained restraining factors.

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 October, the BAEI, at 49.4, came close to its neutral level, up from 48.7 in September.

Although declining slightly, the performance expectations of trading companies remained the most optimistic, thanks to reviving consumer demand, a sufficient supply of goods, and reestablished supply chains, the sector’s index being 51.9 in October, down from 52.1 in September. Respondents expected an increase in trade turnover and in the amount of goods purchased for sale. In contrast, trading companies worsened their expectations about their stocks of goods for sale. Respondents continued to report intentions to cut their trade margins.

Industrial companies reported guarded performance expectations on the back of difficult security conditions and rising energy, labor and logistics costs, the sector’s index being 49.8 in October, down from 50.3 in September. Respondents expected a further increase in the amount of manufactured goods, and in the number of new orders for products. Companies also improved their expectations about the amount of unfinished products and finished goods stocks. In contrast, respondents slightly worsened their expectations about the number of new export orders for products.

Construction companies reported a more negative economic outlook amid a seasonal decline in construction of roads and infrastructure, the sector’s index being 49.6 in October, down from 50.1 in September. Respondents expected construction volumes to increase further, while slightly worsening their expectations of an increase in the number of new orders, and in purchases of raw materials and supplies. Companies were more confident about an increase in purchases of contractor services due to weaker expectations of a rise in the cost of these services. Respondents continued to say that they were less pessimistic about the availability of contractors.

Although improving, the economic expectations of services companies remained the most guarded, because of more intense missile and drone attacks on port infrastructure, rising costs, and shortages of qualified staff, the sector’s index being 47.2 in October, up from 44.6 in September. For the first time in the last six months, respondents expected a slight increase in the number of new orders for services. Companies were also less downbeat about the amount of services provided and the amount of services that are being provided.

With strong expectations of robust growth in purchase prices, companies across all surveyed sectors declared intentions to raise their selling prices.

The labor market situation remained challenging. Respondents across all of the surveyed sectors reported intentions to cut their staff, with respondents from industrial and construction companies expecting to lay off more staff, and those from trading and services companies expecting to lay off fewer staff.