Businesses continued to upgrade their expectations for the output of Ukrainian goods and services, their current standings, and prospects for their future performance. In spite of reporting stronger inflation expectations, companies expect the hryvnia exchange rate to strengthen over the next 12 months. This is evidenced by the findings of a survey of company top managers that the NBU carried out in Q3 2021.
The business expectations index moved up, to 114.3%, from 112.3% in Q2. The improvement in the index mainly resulted from respondents’ firmer expectations of an increase in total sales, investment spending on construction, and staff numbers at their companies (such expectations were reported for the first time since Q3 2019).
Businesses’ Macroeconomic Expectations for Ukraine
For three quarters running, companies have reported significantly firmer expectations of an increase in the output of Ukrainian goods and services over the next 12 months. The balance of responses moved up to 21.6%, from 15.9% in Q2 2021.
Output growth was expected by all companies, regardless of their type of economic activity, business line, and size in terms of staff numbers. It was also expected by companies in most oblasts.
Businesses have also upgraded their exchange rate expectations for three quarters running. The average UAH/USD exchange rate was projected to hit UAH 28.50 per USD 1 in 12 months (UAH 28.71 per USD 1 in the previous quarter). The percentage of respondents who believe that the exchange rate will hover between UAH 26.01 per USD 1 and UAH 28.00 per USD 1 was 34.4%, up from 25.1%.
After improving for two quarters in a row, inflation expectations worsened –in Q3 the expected annual inflation rate was 7.8%, compared to 7.2%in the previous quarter. The percentage of surveyed companies that said that inflation would not exceed 7.5% dropped from over 54%, down to 46.9%. Some 75.1% of respondents (compared to 72.4% in Q2) cited production costs as the main inflation driver. The impact of the exchange rate on inflation has decreased for three quarters running, with 45.1% of respondents citing this, compared to 48.0% in the previous survey.
Companies’ current standings and expectations of their business performance
Managers upgraded their positive expectations of the current financial and economic standings of their companies: the balance of responses was 7.0%, up from 6.0% in Q2.
Respondents also continued to report positive expectations of their financial and economic standings over the next 12 months, the balance of responses being 12.7%, compared to 18.3% in Q2. The strongest expectations were reported by trading and agricultural companies (with balances of responses of 17.9% and 17.0% 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.
Businesses expected a further increase in domestic and foreign sales, the balances of responses being 27.7% and 23.5% respectively, compared to 21.0% for each in Q2 2021. Optimistic views prevailed across all sectors.
Businesses’ expectations about investment expenditures improved: the balance of responses was 19.3% for expenses on machinery, equipment, and tools, and 9.7% for construction (up from 16.9% and 6.4%, respectively, in Q2). Businesses in the vast majority of sectors (except for construction), especially mining companies (with the balance of responses at 22.7%), predicted growth in construction expenditures in the next 12 months.
For the fifth quarter running, businesses that attract foreign investments predicted an increase in these investments: the balance of responses rose to 15.6% from 12.3% in Q2. The share of respondents who planned to raise foreign investments in the next 12 months was 23.4% (up from 22.8% reported in the previous survey).
For the first time in the past two years, businesses projected growth in the total number of their employees: the balance of responses was 2.2% (compared to a negative 1.0% a quarter earlier). Respondents in construction, trade, and other sectors predicted that the number of their employees would rise (the balances of responses being 13.6%, 12.6%, and 6.7%, respectively).
Expectations of growth in employee salaries in the next 12 months increased and remained high: the balance of responses was 61.4% (up from 58.3% in Q2 2021). Only 0.9% of surveyed businesses said they were ready to cut salaries (compared to 1.0% of respondents in Q2 2021).
The percentage of businesses planning to take out loans in Ukraine over the next 12 months increased for the first time since the start of the year, to 40.4% from 36.9% in Q2. The share of respondents that expected to take out loans denominated in the domestic currency remained high, at 77.4% (compared to 78.7% in the previous survey). The percentage of companies planning to borrow abroad was 7.2%, almost flat from 7.0% seen in the previous survey. The impact of high interest rates as the most significant obstacle to attracting new loans increased to 55.2%, up 2.5 pp from a quarter ago. Thirty seven percent of respondents described loan collateral requirements as excessive. More than a third of respondents (34.9%) said they would use sources of funding other than bank loans.
Respondents’ assessments of the difficulty of accessing bank loans improved for the fifth straight quarter (the balance of responses was 2.8% compared to 3.9% in Q2 2021).
This quarterly survey was conducted from 3 August to 2 September 2021. A total of 690 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, 18.3% were in manufacturing, 20.7% were in wholesale and retail trade, 14.9% were in agriculture, 13.3% were in transport and communications, 6.8% were in mining, 4.8% were in energy and water supplies, 3.2% were in construction, and 18.0% 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.