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Businesses slightly downgrade expectations of their economic performance, while increasing their inflation and depreciation expectations – business outlook survey in Q4 2020

Businesses slightly downgrade expectations of their economic performance, while increasing their inflation and depreciation expectations – business outlook survey in Q4 2020

Companies reported gloomier expectations for economic growth and their performance, while increasing inflation and depreciation expectations over the next 12 months on the back of stricter quarantine measures. This is shown by the findings of a survey of top managers of companies that the NBU carried out in Q4 2020.

Following an improvement in Q3, when optimistic views prevailed (100.8%), the business outlook index moved down, to 99.6%.

The decrease in the index resulted from respondents’ lower forecasts for total sales, investment in machinery, equipment and tools, and more downbeat estimations of their companies’ financial and economic standings.

Businesses’ Macroeconomic Expectations for Ukraine

Companies expect that the output of Ukrainian goods and services will continue to contract over the next 12 months. The balance of responses was (-24.4%), down from (-16.1%) in Q3 2020.

Companies reported stronger inflation expectations – in Q4 the expected annual inflation rate was 7.9%, compared to 7.0%in the previous quarter.

Almost half of the surveyed companies said that inflation would be below 7.5%. That said, one out of five respondents expected inflation to be in the range of 7.5% to 10%. 71.9% of respondents (compared to 69.4% in the previous quarter) said that the impact of a weaker hryvnia on inflation had become stronger. 63.6% of respondents cited higher production costs as an inflation driver.

Companies also reported firmer depreciation expectations. The average UAH/USD exchange rate was projected to hit UAH 29.68 per USD 1 after 12 months (UAH 28.99 per USD 1 in the previous quarter). 44.5% of companies believe that the exchange rate will hover between UAH 29.01 per USD 1 and UAH 30.00 per USD 1.

Companies’ expectations of their business performance

Respondents were less optimistic than in the previous quarter about their financial and economic standings over the next 12 months, the balance of responses being 1.3%, compared to 4.4% in Q3 2020. Respondents from mining companies had the highest expectations: their balance of responses was 10.9%. Respondents from manufacturing and agricultural companies also expected an improvement in their financial and economic standings. In contrast, respondents from construction, energy and water supply, and transport and communications companies reported dim expectations.

Businesses expected a rise in total sales, including external sales. Optimistic views prevailed across all sectors, apart from transport and communications.

Companies that attract foreign investment anticipate foreign investment growth, with a balance of responses of 7.0%, up from 5.9% in Q3 2020. That said, respondents were more guarded about their investment activity – while remaining upbeat about investment spending on equipment, machinery and tools (with a balance of responses of 3.8% compared to 5.2% in Q3), respondents across most of the main economic activities expected a decrease in construction investment over the next 12 months.

For five quarters running, businesses have reported intentions to lay off staff. However, in the latest quarter these intentions were less firm: the overall balance of responses was (-9.9%), up from (-10.8%) in the previous quarter. Only 11.5% of companies said they planned to hire more staff over the next 12 months. Some 21.4% of the polled companies said they intended to reduce their workforces. Intentions to cut staff were reported by all respondents, apart from energy and water supply companies.

Meanwhile, the number of companies that plan to raise the wages of their workers over the next 12 months continues to increase. Such intentions were reported by 62.6% of respondents (compared to 55.7% in the previous quarter). Only 3.7% of respondents said they planned to cut wages. 

The percentage of companies that plan to take out domestic loans over the next 12 months was little changed: 41.7% compared to 41.9% in the previous quarter. Most respondents (76.7%) prefer hryvnia loans. Meanwhile, the percentage of companies that plan to take out foreign loans decreased further, to 6.9% (from 8.0%). Overall, companies said that their borrowing needs had decreased, citing high loan rates (58.7% of respondents) and collateral requirements (39.1%) as the main factors that deterred them from taking out loans.

For reference:

The quarterly survey was conducted from 5 November through 3 December 2020. A total of 693 companies in 22 oblasts took part in the survey (excluding the temporarily occupied territory of Crimea, as well as Donetsk and Luhansk oblasts).

Out of the polled companies 18.8% were manufacturing companies, 15.2% agricultural companies, 15.7% wholesale companies, 13.0% transport and communications companies, 6.8% mining companies, 5.1% retail companies, 4.6% electricity and water supply companies, 3.2% construction companies, and 17.7% companies from other economic 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 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.


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