Businesses expect business activity to grow in the next 12 months for the first time since the start of the full-scale war: the business expectations index (BII) rose to 104.5% in the second quarter from 91.2% in the first quarter, the National Bank of Ukraine (NBU) said.
“Against the backdrop of the restoration of the energy system, gradual revival of domestic demand and strengthening of the hryvnia, respondents expect growth in the production of goods and services, and are positive about the development of their own enterprises. At the same time, inflation and exchange rate expectations have improved,” the NBU said in a press release on Monday.
It specified that the improvement of assessments occurred at enterprises of all types of economic activities (VED), as well as for all components of the index.
In particular, business forecasts a rapid growth in the production of goods and services in Ukraine in the coming year: the balance of responses amounted to 17.3% against “minus” 16.7% in the first quarter. Growth is expected by enterprises of all areas and types of economic activity, sizes by number of employees and most areas.
Inflation expectations continued to improve: in the second quarter of 2023, expected annual inflation amounted to 15.7%, compared to 20.7% in the previous quarter. According to the survey, 46.6% of businesses surveyed believe that inflation, which fell to 12.8% at the end of June, will not exceed 15.3% in the next 12 months. According to 88.4% of respondents, military actions remain the most significant pro-inflationary factor.
In addition, the National Bank pointed out that the influence of the “exchange rate factor” and “production costs” has somewhat weakened. The new average value of the exchange rate, which respondents expect in 12 months, is UAH 40.43/$1 against UAH 42.18/$1 a quarter earlier. Moreover, the share of respondents expecting the hryvnia exchange rate to remain at UAH 40.00/$1 in the next year increased from 19.7% to 44.3%.
At the same time, the respondents’ assessment of their own current financial and economic situation, although improved, remains negative: the balance of answers amounted to “minus” 11.1% compared to “minus” 16.9% in the first quarter. The situation worsened at construction enterprises, no improvement was reported by energy and water supply enterprises, and a slight improvement was reported by the extractive industry.
However, for the first time in five quarters, the expectations of enterprises regarding the dynamics of their financial and economic condition became positive: the balance of responses became positive – 9.6% against “minus” 2.5% in the first quarter. Improvement is expected by enterprises of all areas of activity and size in terms of the number of employees, most areas and types of activities, the NBU said.
It added that the survey participants have significantly strengthened expectations of increased sales of products, including in the foreign market: the respective balances of responses rose to 14.5% and 10.9% from 2.8% and 2.0% in the first quarter.
Respondents of all types of economic activities expect growth in total sales volumes, but most of all – in construction, processing industry and trade (balance of answers 30.0%, 21.6% and 21.0%, respectively), the National Bank said.
The enterprises of Sumy, Kirovograd and Odessa regions expect a decrease in production, while in Rivne, Ternopil and Khmelnitsky regions the estimates remained the same.
According to its data, against the background of weakening expectations of enterprises regarding the need for borrowed funds in the near future, the share of respondents planning to take bank loans decreased to 30.0% from 35.4% in the first. As before, enterprises that plan to take loans prefer loans in the national currency – 79.2% against 79.7% a quarter earlier.
High interest rates remain a significant obstacle to attracting new loans – 49.7% of responses. At the same time, the influence of the factor “availability of other sources of financing” increased by 5.5 percentage points to 42.0%. The share of companies planning to raise funds abroad remained almost unchanged at 7.3% compared to 7.4% in the previous quarter.
The National Bank noted that for the first time in five quarters, companies provided positive estimates of changes in the level of investment expenditures on machinery, equipment and inventory: the balance of responses improved to 4.5% from “minus” 10.3% in the first quarter. At the same time, pessimistic assessments regarding investment expenditures on construction works significantly weakened: the balance of responses rose to “minus” 2.3% from “minus” 17.8% in the first quarter.
It is indicated that the expectations of enterprises attracting foreign investments with regard to their increase in the nearest year continued to improve: the balance of answers reached 15.3% from 11.0% in the first quarter. The highest expectations are among enterprises of transportation and communications, as well as construction. The share of respondents who plan to attract foreign investment in the next 12 months now stands at 23.1%, up from 21.3% a quarter earlier.
Respondents significantly weakened their forecasts for the reduction of the number of employees at their enterprises in the coming year: the balance of responses improved to “minus” 3.8% from “minus” 16.4% in the first quarter. Respondents of construction and trade enterprises now expect an increase in the number of employees, while negative assessments still prevail in the sphere of transportation and communications, processing industry.
As noted by the National Bank, the survey participants expect an increase in future labor costs per employee: the balance of responses rose to 44.6% from 35.3% in the first quarter.
It is specified that the quarterly survey was conducted in May this year, it was attended by 660 enterprises from 21 regions of the country. Among the respondents 20.9% – wholesale and retail trade companies, 18.2% – processing industry, 13.9% – agriculture, 13?8% – transportation and communications, 7?3% – mining, 5.2% – energy and water supply, 3.0% – construction, 17.7% – others; 32.4% of respondents – large enterprises, 37.4% – medium, 30.2% – small.
IDO – aggregate indicator of expected development of enterprises in the next 12 months. It is calculated based on the results of surveys of enterprises as the arithmetic mean of balances of answers regarding financial and economic condition of enterprises, total sales of own production, investment expenditures on construction works, investment expenditures on machinery, equipment and inventory, number of employees. The index value over 100 means the advantage of positive economic sentiments in the society, below 100 – negative economic sentiments.
