Business Softens Negative Expectations About Future Own Business Activity And Inflation Estimates

Business has slightly weakened negative expectations regarding the dynamics of the volume of production of goods and services in Ukraine in the next 12 months against the background of active hostilities and terrorist attacks.

This is evidenced by the results of a survey of managers on the business activity of their companies, which the National Bank of Ukraine (NBU) conducted in the fourth quarter of 2022, Ukrainian News Agency reports.

At the same time, for the second quarter in a row, there is a softening of negative expectations regarding the future business activity of enterprises.

Against the backdrop of worsening devaluation expectations, inflation estimates softened. The index of business expectations of enterprises increased to 83.5% compared to 79.5% in the third quarter of 2022 (hereinafter referred to as the third quarter).

A slight weakening of negative expectations occurred mainly due to less pessimistic estimates regarding investment expenditures and the number of employees.

The business softened negative expectations regarding the dynamics of the volume of production of goods and services in Ukraine in the next 12 months.

The balance of responses was "minus" 32.3% compared to "minus" 37.9% in the third quarter.

Inflation expectations have improved: in the fourth quarter of 2022, the expected annual inflation was 23.3% compared to 25.2% in the previous quarter. 71.8% of surveyed enterprises believe that inflation in the next 12 months will not exceed 30.0%.

According to 89.2% of respondents, the most significant pro-inflationary factor remains hostilities.

The influence of the "production costs" factor has significantly increased.

Devaluation of the national currency rate is expected to increase: the share of those who expect the national currency rate to be in the range of 38.00–40.00 UAH/USD has almost halved.

The average value of the exchange rate, which the respondents expect in 12 months, is 42.59 UAH/USD (in the previous quarter - 41.93 UAH/USD).

Despite the softening of respondents' assessments of the current financial and economic condition of their own enterprises for the second quarter in a row, the overall assessment remains negative: the balance of responses was "minus" 19.3% compared to "minus" 21.8% in the third quarter.

At the same time, respondents' expectations regarding changes in the financial and economic condition of enterprises in the next 12 months have improved, although they remain negative: the balance of responses is "minus" 11.5% (in the third quarter - "minus" 15.1%).

Despite a slight improvement in the overall assessment, the respondents of all types of economic activity, except for construction enterprises, expect a worsening of the financial and economic condition.

The most pessimistic expectations are in energy and water supply enterprises ("minus" 32.3%) and mining industry ("minus" 29.3%), construction enterprises do not expect any changes in the next 12 months.

The business continues to expect a decrease in sales volumes, including on the foreign market.

Only trade enterprises expect an increase in the total volume of sales.

At the same time, for the second quarter in a row, respondents expect an increase in future labor costs per employee in the next 12 months: the balance of responses is 39.0% compared to 33.5% in the third quarter.

Against the background of a decrease in estimates of enterprises regarding the need for loan funds, the share of enterprises planning to take bank loans decreased in the near future - to 35.0% (in the third quarter of 2022 - 40.2%).

As before, the vast majority of enterprises planning to raise loans prefer loans in the national currency - 84.9% (in the third quarter of 2022 - 86.3%).

The most significant obstacle to attracting new loans remains high loan rates - 49.5% of responses.

Compared to the previous survey, the influence of the factor increased by 2.3 percentage points.

The share of companies planning to raise funds abroad decreased to 7.8% compared to 9.5% in the previous quarter.

The quarterly survey was conducted from October 31 to November 30, 2022.

637 enterprises from 21 regions of the country participated in the survey (excluding the temporarily occupied territory of the Autonomous Republic of Crimea, as well as the Donetsk, Luhansk and Kherson Regions).

Among the surveyed enterprises, 21.2% are wholesale and retail trade companies, 19.3% are processing industry, 14.1% are agriculture, 13.0% are transport and communications, 6.6% are mining industry, 4.9% are energy and water supply, 3.0% are construction, 17.9% - others.

The results of the surveys reflect only the opinion of the respondents - managers of enterprises, and not the assessments of the National Bank of Ukraine.

As Ukrainian News Agency earlier reported, the Business Expectations Index is an aggregate indicator of the expected development of enterprises in the next 12 months.

It is calculated based on the results of surveys of enterprises as the arithmetic mean value of the balances of answers regarding the financial and economic status of enterprises, the total volume of sales of products of own production, investment expenditures for construction works, investment expenditures for machines, equipment and inventory, and the number of employees.

The value of the index above 100 means the predominance of positive economic attitudes in society, below 100 - negative economic moods.

According to operational data, the amount of funds placed by individuals in hryvnia and foreign currency bank accounts increased by 5.4% to UAH 929.881 billion as of January 1 compared to December 1.