The National Bank provided new business assessments of economic growth and own development for the next 12 months. Ukrainian business does not expect any improvement in the new year, but predicts that the authorities will increase quarantine measures.
The results of a survey of company executives conducted by the National Bank in the fourth quarter of 2020 showed that businesses do not expect economic growth in 2021. Instead, entrepreneurs are confident that inflation and devaluation will show growth against the background of increasing quarantine measures.
The index of business expectations of enterprises was 99.6%. Thus, it deteriorated after an improvement in the third quarter, when optimism prevailed (100.8%). According to the website of the National Bank of Ukraine, the decline in the index was due to the deterioration of respondents’ estimates of total sales of the own production, investment expenditures on machinery, equipment and inventory, as well as the financial and economic condition of the own enterprises.
Expectations regarding the macroeconomic situation in Ukraine
Enterprises expect that the production of goods and services in Ukraine in the next 12 months will continue to decline. The balance of responses was -24.4% against -16.1% in the third quarter of 2020.
Inflation expectations of enterprises intensified: in the fourth quarter the expected annual inflation was 7.9% compared to 7.0% in the previous quarter. Almost half of the surveyed companies believe that inflation will be below 7.5%. However, every fifth respondent predicts inflation from 7.5% to 10.0%. The impact of the weakening hryvnia on inflation has increased: 71.9% of respondents noted this against 69.4% last quarter. 63.6% of respondents consider an increase in production costs to be a pro-inflationary factor.
Business devaluation expectations have also intensified. The average value of the exchange rate that respondents expect in 12 months is 29.68 UAH / USD (in the previous quarter – 28.99 UAH / USD). 44.5% of enterprises believe that the exchange rate will range from 29.01 UAH / USD up to 30.00 UAH / USD.
Expectations regarding the own business
Estimates of enterprises on the change in their financial and economic condition in the next 12 months decreased slightly, but remain optimistic: the balance of responses – 1.3% (in the third quarter of 2020 – 4.4%). The highest expectations are in mining enterprises (balance of responses – 10.9%). Respondents from the processing industry and agriculture also expect financial and economic conditions to improve. Instead, enterprises of construction, energy and water supply, transport and communication have negative expectations.
Business expects an increase in sales of its products, including in foreign market. Optimism prevails in all sectors of the economy except transport and communications.
Enterprises attracting foreign investment forecast an increase in their volumes: the balance of responses increased from 5.9% to 7.0% in the third quarter. However, the general mood of enterprises on investment activity has become more restrained: expectations regarding investment expenditures on machinery, equipment and inventory remain positive (balance of responses 3.8% against 5.2% in the third quarter), while enterprises of most major economic activities forecast lower investment expenditures for construction work in the next 12 months.
For the fifth consecutive quarter, businesses are set to reduce the number of employees, albeit slightly slower than before: the overall balance of responses was -9.9% (-10.8% in the previous quarter). Only 11.5% of companies plan to hire new employees over the next 12 months. Staff reductions are expected by 21.4% of surveyed companies. Respondents of all types of economic activity are pessimistic, except for energy and water supply companies.
At the same time, the number of companies that plan to increase the salaries of their employees over the next 12 months continues to grow. These are 62.6% (against 55.7% in the previous quarter). Only 3.7% of companies are ready to reduce salaries.
The share of companies that plan to attract loans in Ukraine over the next 12 months is 41.7% against 41.9%. The vast majority of borrowers (76.7%) prefer the national currency. At the same time, the share of companies planning to take loans abroad continues to decline, from 8.0% to 6.9%. In general, enterprises noted a lower need for borrowed funds, and the main obstacles to attracting new loans were high rates (58.7% of respondents) and excessive collateral requirements (39.1%).
The quarterly survey was conducted from November 5, 2020 to December 3, 2020. 693 enterprises from 22 regions of the country (excluding the temporarily occupied territory of the Autonomous Republic of Crimea, as well as Donetsk and Luhansk regions) took part in the survey. Among the surveyed enterprises 18.8% –manufacturing companies, 15.2% – agriculture, 15.7% – wholesale, 13.0% – transport and communications, 6.8% – mining, 5.1 % – retail trade, 4.6% – electricity and water supply, 3.2% – construction, 17.7% – enterprises of other industries.
Translation: Evelina Susyk