Businesses continued to upgrade their expectations for the output of Ukrainian goods and services, current standings, and prospects for future performance. Respondents also expected slower inflation and weaker hryvnia depreciation over the next 12 months. This is evidenced by the findings of a survey of company top managers that the NBU carried out in Q2 2021.
The business expectations index moved up, to 112.3%, from 108.4% in Q1.
The improvement in the index mainly resulted from respondents’ reports of high expectations for total sales, their financial and economic standings, investment in machinery, equipment and tools, and construction investment.
Businesses’ Macroeconomic Expectations for Ukraine
For two 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 was 15.9%, up from 5.6% in Q1 2021.
Companies have expected lower inflation for two quarters in a row –in Q2 the expected annual inflation rate was 7.2%, compared to 7.7%in the previous quarter.
Over 50% of the surveyed companies said that inflation would not exceed 7.5%. Over 70% of respondents cited higher production costs as the main inflation driver. Respondents said the impact of the exchange rate on inflation was continuing to decrease, with 48.0% of respondents citing this factor as important, compared to 52.9% in the previous survey.
Businesses have also upgraded their exchange rate expectations for two quarters running. The average UAH/USD exchange rate was projected to hit UAH 28.71 per U.S. dollar in 12 months (UAH 29.15 per U.S. dollar in the previous quarter). Over 38% of companies believe that the exchange rate will hover between UAH 28.01 and UAH 29.00 to the U.S. dollar.
Companies’ expectations of their business performance
Respondents positively assessed their current financial and economic standings for the first time since Q1 2020, the balance of responses being 6.0%, compared to
(-0.7%) in Q1.
Respondents also improved their expectations of their financial and economic standings over the next 12 months, the balance of responses being 18.3%, compared to 12.7% in Q1.
The highest expectations were reported by respondents from the agricultural sector (with a balance of responses of 27.2%). An improvement in financial and economic standings was expected by companies across all sectors, apart from those in the energy and water supply sectors.
Businesses expected a further increase in domestic and foreign sales, the balances of responses being 21.0% for each, compared to 18.0% and 14.9% respectively in Q1 2021. Optimistic views prevailed across all sectors, apart from in the energy and water supply sector.
Businesses reported firmer expectations of an increase in construction investment and investment in machinery, equipment and tools, the balances of responses being 6.4% and 16.9% respectively, compared to 11.7% and 1.4% in Q1 2021. For the first time since Q2 2019, all respondents expected an increase in construction investment over the next 12 months, with energy and water supply companies reporting the firmest expectations (17.2% balance of responses).
Companies that raise foreign investment have reported stronger expectations of an increase in foreign investment for four quarters in a row, the balance of responses being 12.3%, up from 10.4% in Q1 2021.
Respondents continued to soften their intentions to cut staff, the balance of responses being (-1.0%), up from (-1.9%) in the previous quarter. Respondents from trading, mining and construction companies even reported intentions to hire more staff, the balances of responses being 8.0%, 6.5% and 5.0% respectively.
Respondents continue to report strong intentions to raise wages over the next 12 months, the balance of responses being 58.3%, compared to 60.6% in Q1 2021.
Only 1% of those surveyed said they intended to cut wages, compared to 2.0%in Q1 2021.
The percentage of companies that plan to take out domestic loans over the next 12 months decreased further, to 36.9%, down from 39.3% in the previous quarter. Most respondents (78.7%) as before prefer hryvnia loans. Meanwhile, there was a decrease in the percentage of companies that plan to take out foreign loans, to 7.0%, down from 8.7% in the previous survey. Companies cited high loan rates (52.7% of respondents) and collateral requirements (36.0%) as the main factors deterring them from taking out loans. Over a third of respondents (35.1%) rely on other funding sources, rather than using bank loans. The importance of this factor has increased for seven quarters running.
This quarterly survey was carried out from 5 May through 2 June 2021. A total of 687 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 companies polled, 18.5% are manufacturing companies, 20.5% wholesale and retail companies, 14.6% agricultural companies, 13.5% transport and communication companies, 6.7% mining companies, 4.7% energy and water supply companies, 2.9% construction companies, and 18.6% companies engaged in other economic activities.
This survey only reflects the opinions of the respondents (top-managers of Ukrainian companies), and does not represent the NBU’s 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.