Businesses downgraded their economic assessments due to rising uncertainty and costs - NBU
Kyiv • UNN
Businesses have downgraded their assessments of current operations and prospects due to the intensification of hostilities, rising costs, and uncertainty.
Businesses have worsened their assessment of the current results and prospects of their activities in Ukraine. This is evidenced by a survey of enterprises in January, the press service of the National Bank of Ukraine writes, UNN reports.
The increased intensity of hostilities, uncertainty about the timing and amount of external financial assistance, the blockade of the western borders, rising production costs to strengthen cyber defense, a lack of skilled workers, and a seasonal weakening of economic activity at the beginning of the year contributed to the deterioration in business activity assessments of enterprises in all sectors participating in the monthly surveys. ... In January 2024, the IODA decreased to 41.0 from 45.7 in December 2023.
Details
According to the bank, these factors contributed to the deterioration in business activity assessments of enterprises in all sectors participating in the monthly surveys.
In particular, industrial enterprises increased their pessimistic expectations about their economic performance, given the growing pressure from production costs and logistical difficulties with crossing the western border: the sectoral index in January decreased to 43.7 (in December - 46.9). Respondents significantly downgraded their estimates of output and new orders, and predicted a further decline in inventories of raw materials. Negative assessments of new export orders and work in progress remained, while those of finished goods stocks increased.
For the second month in a row, trade enterprises predicted a deterioration in their economic performance against the backdrop of higher imports due to the blockade of the western borders, high fuel prices and slowing demand: the sectoral index in January dropped to 38.9 from 46.9 in December. Trade companies were the most pessimistic about their turnover and purchases of goods for sale, while expecting a significant increase in inventories. Respondents significantly softened their estimates of the rise in the cost of goods purchased for sale, while predicting further growth in supplier prices and expecting further narrowing of trade margins .
Service companies once again strengthened their negative assessments of their current performance, taking into account lower demand due to higher tariffs and security risks: the sectoral index amounted to 40.4 compared to 44.0 in December. Respondents expected a further decline in the volume of services provided, new orders, and services in progress.
For the fourth time in a row, construction companies provided the most pessimistic assessment of their economic performance among other sectors, taking into account intense hostilities, shortage of qualified personnel, and seasonal factors: the sectoral index amounted to 31.9 (in December - 42.1). Respondents significantly downgraded their expectations for construction volumes, new orders, and purchases of raw materials. Builders increased their pessimism about the availability of contractors and maintained their expectations of a decrease in purchases of their services, despite the slowdown in the growth rate of the cost of these services.
In addition, according to the survey, all business respondents predicted a rise in the price of their own products and services due to increased expectations of accelerating growth in purchase prices.
The NBU also noted a deterioration in employment estimates. Managers of companies in all sectors expected a reduction in the total number of employees, most significantly in the construction sector.
Survey methodology
The monthly survey of enterprises was conducted from January 04 to January 23, 2024. A total of 442 enterprises took part in the survey. Among the surveyed enterprises, 44.1% are industrial companies, 28.5% are service companies, 22.4% are trade companies, and 5.0% are construction companies; 32.4% of respondents are large enterprises, 29.0% are medium-sized enterprises, and 38.7% are small enterprises.
31.9% of the surveyed enterprises carry out export and import operations, 9.0% - only export operations, 17.0% - only import operations, 42.1% - do not carry out external economic operations.
The results of the surveys reflect only the opinions of the respondents, who are business executives, and not the NBU's estimates.
The monthly Business Confidence Index (BCI) is a tool for rapid assessment and tracking of economic development trends. The index is calculated on the basis of surveys of Ukrainian enterprises in the real sector of the economy.
Based on the respondents' answers, monthly indices of business activity expectations are calculated - sectoral indices (for each sector of the economy) and a composite index characterizing the country's economic development over the month. The index value of 50 is neutral. Expectations are positive if the index value exceeds the neutral level.
