Business Outlook Survey ResultsРезультати of surveys опитувань of Vinnitsa керівників region * enterprisesпідприємств managers м.of Києва Vinnytsia regarding і Київської O blasttheir області щодоbusiness їх ділових expectations очікувань*Q2 20 20* This survey was conducted after the government announcedI квартал it would relax2018Q2 the 2018року quarantine

*This survey only reflects the opinions of respondents in Vinnytsia oblast (top managers of *Надані результати є відображенням лише думки респондентів – керівників підприємств Вінницької companies) who were polled in Q2 2020, and does not represent NBU forecasts or estimates області в IІ кварталі 2018 року і не є прогнозами та оцінками Національного банку України.

Business Outlook Survey of Vinnytsia Oblast Q2 2020

A survey of companies carried out in Vinnytsia oblast in Q2 2020 showed that respondents expected a drop in the output of Ukrainian goods and services over the next 12 months on the back of the quarantine. They were optimistic about the future performance of their companies over that period. Respondents expected that prices would rise and that the domestic currency would depreciate further.1 The top managers of companies said they expected that over the next 12 months: . the output of Ukrainian goods and services would drop significantly: the balance of expectations was (-33.3%) compared with 23.8% in Q1 2020 and (-34.1%) across Ukraine (Figure 1). Respondents from agricultural companies had the most pessimistic expectations (the balance of responses was (-62.5%)). At the same time, manufacturing companies expected that growth in the output of Ukrainian goods and services would speed up

. prices for consumer goods and services would rise: 52.4% of the respondents expected that the inflation rate would be higher than 7.5% (compared with 45.1% across Ukraine). Respondents referred to production costs as the main inflation driver (90.5% of responses) (Figure 2)

. the domestic currency would continue to depreciate: 61.9% of respondents (compared to 60.0% in the previous quarter) expected the hryvnia to weaken against the US dollar, the figure across Ukraine being 68.2%

. the financial and economic standings of their companies would improve: the balance of expectations was 20.0% (compared with 15.0% in the previous quarter). This was one of the best assessments across the regions (see Table). Respondents from agricultural companies had the most optimistic expectations. Companies across Ukraine expected a deterioration in their financial and economic standings (-1.8%) (see Table)

. total sales would decrease: the balance of responses was (-10.5%) compared with 33.3% in the previous quarter (see Table). External sales were expected to remain unchanged: the balance of responses was 0.0% compared with 25.0% in Q1 2020. Overall, companies across Ukraine expected sales to decrease slightly, the balances of responses being (-0.1%) and (-0.7)% respectively

. investment in construction and in machinery, equipment and tools would decrease: the balances of responses were (-10.0%) and (-14.3%) respectively compared with 10.0% and 28.6% in the previous quarter. Across Ukraine, the balances of responses were (-16.1%) and (-10.5%) respectively

. staff numbers at their companies would drop: the balance of responses was (-19.0%) compared with 0.0% in the previous quarter and (-17.3%) across Ukraine (Figure 4)

. purchase prices would rise at a faster pace (the balance of responses was 95.2% compared with 85.7% in the previous quarter) than selling prices (the balance of responses was 61.9%, unchanged on the previous quarter) (Figure 6). A total of 76.2% of respondents cited raw material and supplies prices as the main source of selling price growth (Figure 7)

. the growth in per-unit production costs and wage costs per staff member would decelerate significantly: the balances of responses were 47.1% and 33.3% respectively compared with 71.4% and 76.2% in Q1 2020 (Figures 4 and 6) High raw material and supplies prices were cited as the main drags on the ability of companies to boost production (by 66.7% of respondents). Respondents also reported a noticeable decrease in the impact of the tax burden (Figure 5). Respondents expected a significant increase in their borrowing needs in the near future (Figure 8). The companies that planned to take out corporate loans opted only for domestic currency loans. Respondents said that lending standards had tightened (Figure 9). Companies cited high loan rates as the main factor that deterred them from taking out loans (Figure 10). All respondents said that they had encountered no difficulties in effecting transactions with funds deposited in bank accounts (96.5% across Ukraine).

Assessments of financial and economic standings as of the time of the survey (Figure 3) . Respondents assessed their current financial and economic standings as satisfactory: the balance of responses was 0.0% compared with 19.0% in Q1 2020. Across Ukraine, the current financial and economic standings of companies were assessed as bad, the balance of responses being (-11.6%).

. Stocks of finished goods had remained at a level lower than the normal one: the balance of responses was (-15.4%) (compared to (-7.7%) in Q1 2020).

. Companies had a sufficient amount of unutilized production capacity to meet any unexpected rise in demand: the balance of responses was 19.0% (compared with 14.3% in Q1 2020).

1 This survey was conducted after the government announced it would relax the quarantine.

2 Business Outlook Survey of Vinnytsia Oblast Q2 2020

Survey Details2,3

Respondents in terms of main economic Respondents in terms of enterprise size based Respondents in terms of business activities, % on staff number, % activities,%

Other Exporters only Large (more 14.3 Small (up to 50 14.3 Agriculture than 250 Neither exporters persons) Transport and 38.1 persons) nor importers 23.8 communications 28.6 57.1 Imports only 9.5 4.8

Wholesale and Both exporters retail trade and importers 9.5 23.8

Construction 4.8 Energy and Medium (from 51 and up water supply Manufacturing to 250 persons) 4.8 19.0 47.6 . Period: 5 May through 2 June 2020. . A total of 21 companies were polled. . A representative sample was generated on the basis of the following economic activities: agriculture and the manufacturing industry.

Business outlook index for next 12 months in terms of regions,% Business Outlook Index for Next 12 Months in Terms of Oblasts4, %

Riv ne Oblast Voly n Oblast Chernihiv Oblast 103.1 90.5 Zhy tomyr 85.5 Sumy Oblast Oblast 87.1 125.7 Ky iv and Lv iv Oblast Ky iv Oblast Poltav a Oblast Kharkiv Oblast 105.0 Ternopil Oblast 92.4 81.4 92.1 97.8 Khmelny tskyi Cherkasy Luhansk Oblast Iv ano-Frankivsk Oblast Vinny tsia Oblast Zakarpattia Oblast 89.8 Oblast 102.0 Oblast 93.2 no data 70.9 Donetsk 99.5 Cherniv tsi Oblast Kirov ohrad Oblast Dnipropetrov sk Oblast Oblast 86.7 70.1 85.7 no data Zaporizhia My kolaiv Oblast Odesa 58.8 Oblast Oblast 95.6 88.9 Kherson Oblast 101.5 minimum 58.8 1 quartile 86.0 1 quarter 2 quartile (median) 91.3 Crimea 2 quarter 3 quartile 99.0 no data 3 quarter maximum 125.7 4 quarter Ukraine 90.8 *a quartile is the v alue of the BOI where an ordered sample is div ided into f our equal-sized subgroups **a median is the v alue of the BOI in the middle of an ordered sampled where the sample is div ided into two equal-sized subgroups Table. The Business Outlook Index of Companies in Vinnytsia Oblast and Its Components

Balances of responses, % Expectations over next 12 months for Q2 19 Q3 19 Q4 19 Q1 20 Q2 20

Financial and economic standings 25.0 15.8 23.8 15.0 20.0

Total sales 45.5 35.0 20.0 33.3 -10.5

Investment in construction 33.3 5.3 -5.6 10.0 -10.0

Investment in machinery, equipment and tools 19.0 5.3 -5.6 28.6 -14.3

Staff numbers 4.5 -14.3 -19.0 0.0 -19.0

2 This sample was generated in proportion to the contribution of each oblast and each economic activity to Ukraine’s gross value added. 3 Data for totals and components may be subject to rounding effects. 4 The business outlook index (BOI) is an aggregate indicator for expected business performance over the next 12 months. It is calculated using the balances of respondents' responses regarding changes in the financial and economic standings of their companies and future economic activity.

3 Business Outlook Survey of Vinnytsia Oblast Q2 2020

Figure 1 Figure 2

Output expectations for next 12 months, Assessment of consumer price drivers, percentage of responses percentage of responses

100 100 0 20 40 60 80 100

80 80 Production costs

60 60 Exchange rate 40 40

20 20 Household income 0 0 Budgetary social -20 -20 spending

-40 -40 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Tax changes Output will decrease Output will be unchanged Output will increase Global prices Balance of expectations (right scale) Q2 20 Q1 20

Supply (availability) of money

Figure 3 Figure 4

Economic activity as of the time of the survey, Staff level and wage cost expectations for next 12 balance of responses months, balance of responses 30 100 20 80

10 60

0 40

-10 20

0 -20 -20 -30 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 -40 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Financial and economic standings Staff level expectations Wage costs per staff member Finished goods stocks Unutilized production capacity Figure 5 Figure 6

Assessment of factors that impede output Expectations of producer prices for next 12 months, balance of responses 0 20 40 60 80 100 High raw material and supplies prices High energy prices 80

Limited availability of loan 60 Lack of working assets Insufficient production 40 capacity Weak demand 20 Political situation 0 Qualified staff shortage Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Tax burden Purchase prices Selling prices Regulatory burden Per-unit production costs

Corruption Q2 20 Q1 20 Exchange rate fluctuations

4 Business Outlook Survey of Vinnytsia Oblast Q2 2020

Figure 7 Figure 8

Expectations of borrowing needs and intentions to Assessment of selling price drivers, take out corporate loans in the near future, percentage of responses percentage of responses 0 20 40 60 80 100 75 75 Raw material and supplies prices 60 60 Energy prices

45 45 Wage costs

Exchange rate 30 30

Demand 15 15

Global prices 0 0 Tax burden Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Percentage of respondents who intend to take out loans Domestic competition Q2 20 Q1 20 Borrowing needs (balance of responses, right scale)

Loan rates

Figure 9 Figure 10

Expectations of lending conditions for next 12 Assessment of factors that could deter months, balance of responses* companies from taking out loans, percentage of responses 40 0 20 40 60 80

30 High loan rates

20 Collateral requirements

Uncertainty about ability to 10 meet debt obligations as they fall due

0 Complicated paperwork Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 *The difference between the percentages of responses “tightened” and “eased” Q2 20 Exchange rate fluctuations Q1 20

Other funding sources

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