Ukrainian business shows cautious optimism for 2025

All existing leading indicators point to cautious business optimism and moderate assessment of macroeconomic prospects. It is clear that a significant increase in business confidence can only occur if energy supplies improve and hostilities are suspended.

The key risks to economic development in 2025 are growing power shortages due to further damage to energy facilities, increased intensity of hostilities throughout the year, accelerating inflation, increased labor shortages and logistical difficulties. In such conditions, it is difficult for Ukrainian businesses to show high optimism, which is reflected in the levels of leading indicators.

The longest leading indicator is the Business Expectations Index (BEI), which is calculated quarterly by the National Bank and records the indicators of expected development of enterprises in the next 12 months. In the second quarter of 2024, the Business Expectations Index (BEI) increased to 100.6% from 99.5% in the second quarter. The index value above 100 means the advantage of positive economic sentiment, while below 100 – negative.

The increase in the BDI was due to the growth of positive assessments of sales volumes, investment expenditures on equipment and inventory, as well as due to the softening of negative assessments of investment expenditures on construction works. Estimates of the future financial and economic condition of businesses and the number of employees deteriorated.

In the next 12 months, businesses expect (as of the second quarter of 2024 compared to the second quarter):

• increase in the production of goods and services: 3.7% vs -0.3%;
• deterioration of financial and economic development of the enterprise: -0.9% vs -0.2%;
• inflation growth: up to 9.7% vs 9%;
• acceleration of devaluation: average value – up to UAH 43.72/USD vs UAH 41.61/USD.

All this is within the limits of the indicators, which are laid down in the state budget-2025, where inflation is 9.7% and the exchange rate is UAH 45/dollar. This corresponds with other surveys. According to the survey of the European Business Association, the average dollar exchange rate, which is pledged by business in budgets for 2025 is 44 UAH/dollar.

The Economic Sentiment Indicator (ESI) in Ukraine, calculated by the State Statistics Committee, decreased to 103.3% in the IV quarter of 2024 from 105.2% in the II quarter. In Q1-Q2 2024 it was 103.3% and 109.8%, respectively.

In the IV quarter of 2024, the business confidence indicator in the processing industry deteriorated compared to the II quarter to -8.7% from -7.6%. At the same time, the indicator in the construction industry increased by 6.3 p.p., to -40.5%. – to -40.5%, as the availability of orders for construction works is 5 months on average.

The business confidence indicators in processing and construction show expectations for the current quarter. These indicators are compiled by assessing the current level of production/sales, orders, and finished goods inventories for the last and next three months.

Other leading indicators include investment expectations, which rose more in machinery than the industry average. This is due to the fact that this industry has orders, including production for defense needs.

There is a probability that there will be no growth of investments in the steel industry in 2025. If Ukraine loses Pokrovsk and its coking coal reserves, we will see a significant drop in steel production and, at best, a long period of reorganization of logistics chains for importing this raw material.