Business Outlook Survey Results of surveys of Vinnitsa region * enterprises managersof Poltavaregarding O blasttheir business expectations * Q2 2020 Q2 2018 This survey wasI conducted квартал after 2018 the government року

announced it would relax the quarantine

*This survey only reflects the opinions of respondents in Poltava oblast (top managers of companies) who were polled in Q2 2020, and does not represent NBU forecasts or estimates

Business Outlook Survey of Poltava Oblast Q2 2020

A survey of companies carried out in Poltava oblast in Q2 2020 showed that respondents expected a drop in the output of Ukrainian goods and services and weaker performance of their companies over the next 12 months on the back of the quarantine. Respondents expected that prices for consumer goods and services 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: the balance of expectations was (-31.8%) compared with 12.8% in Q1 2020 and (-34.1%) across Ukraine (Figure 1)

. the prices of consumer goods and services would rise: the share of respondents who said that inflation would exceed 7.5% was 55.5% compared with 45.1% across Ukraine. Respondents referred to production costs as the main inflation driver (Figure 2)

. the domestic currency would depreciate: a total of 65.9% of respondents (compared with 61.5% in the previous quarter) expected the hryvnia to weaken against the US dollar, with the figure across Ukraine being 68.2%

. the financial and economic standings of their companies would deteriorate: the balance of expectations was (-16.7%) (compared with 2.8% in Q1 2020 and (-1.8%) across Ukraine) (see Table)

. total sales of their own products would decrease: the balance of responses was (-11.6%) compared with 10.3% in the previous quarter. Respondents also expected a decrease in external sales (the balance of responses was (-14.3%) compared with 28.6% in Q1 2020). Across Ukraine, the balances of responses were (-16.1%) and (-10.5%) respectively

. investment both in construction and in machinery, equipment and tools would decrease: the balances of responses were (-32.6%) and (-18.6%) respectively (compared to 5.4% and 16.2% in Q1 2020). Across Ukraine, the balances of responses were (-16.1%) and (-10.5%) respectively

. staff numbers at their companies would decrease: the balance of responses was (-13.6%) compared with 2.6% in Q1 2020 and (-17.3%) across Ukraine. At the same time, the managers of agricultural companies expected an increase in staff numbers at their companies (Figure 4)

. purchase prices would rise at a slower pace: the balance of responses was 65.9% (compared with 77.5% in the previous quarter). Meanwhile, selling prices were expected to grow at a faster rate: the balance of responses was 43.2% (compared with 32.5% in the previous quarter) (Figure 6). Respondents referred to high energy, raw material and supplies prices and wage costs as the main selling price drivers (Figure 7)

. per-unit production costs would increase at a faster pace, while wage costs per staff member would decelerate. The balances of responses were 46.5% and 43.2% respectively compared to 42.1% and 60.0% in Q1 2020) (Figures 4 and 6). Respondents referred to weak demand as the main drag on the ability of their companies to boost production (Figure 5). The impact of a lack of working assets was reported to have increased significantly compared to the previous quarter. Respondents lowered their expectations of an increase in their borrowing needs in the near future (Figure 8). Half of the respondents planned to take out bank loans and usually opted for domestic currency loans. Respondents said that lending conditions had tightened (Figure 9). Respondents continued to refer to high interest rates as the main factor that deterred them from taking out loans (Figure 10). A total of 95.5% of 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) . The current financial and economic standings of companies had deteriorated and were assessed as bad: the balance of responses was (-11.4%) compared to 5.3% in Q1 2020 and (-11.6%) across Ukraine. . Finished goods stocks had decreased and were assessed at a level lower than the normal one: the balance of responses was (-6.9%) compared with 3.7% in Q1 2020. . Companies in the region had a sufficient amount of unutilized production capacity to meet any unexpected rise in demand: the balance of responses was 13.6% compared with 7.7% in the previous quarter.

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

2 Business Outlook Survey of Poltava 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 Neither exporters Exporters only Transport and Small (up to 50 6.8 Agriculture nor importers 13.6 communications persons) 6.8 15.9 43.2 Wholesale and 18.2 Large (more retail trade than 250 6.8 Imports only Construction persons) 11.4 2.3 45.5 Energy and water supply Mining 2.3 29.5 Both exporters and importers 31.8 Manufacturing Medium (from 51 and 29.5 up to 250 persons) 36.4 . Period: 5 May through 3 June 2020. . A total of 44 companies were polled. . A representative sample was generated on the basis of the following economic activities: agriculture, and the mining and manufacturing industries. Business outlook index for next 12 months in terms of regions,% Business Outlook Index for Next 12 Months in Terms of Regions4, %

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 Poltava 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 20.6 2.9 8.8 2.8 -16.7

Total sales 16.7 13.9 13.9 10.3 -11.6

Investment in construction 6.5 15.2 3.0 5.4 -32.6

Investment in machinery, equipment and tools 23.3 12.1 15.2 16.2 -18.6

Staff numbers -11.4 -2.7 -8.3 2.6 -13.6

2 This sample was generated in proportion to the contribution of each region 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 Poltava Oblast Q2 2020

Figure 1 Figure 2

Output expectations for next 12 months, Assessment of consumer price drivers, percentage of responses percentage of responses 0 20 40 60 80 100 100

80 80 Production costs

60 60 Exchange rate 40 40

20 20 Household income 0 0

-20 -20 Tax changes

-40 -40 Budgetary social Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 spending Output will decrease Output will be unchanged Output will increase Supply (availability) of Balance of expectations (right scale) money Q2 20 Q1 20

Global prices

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 20 80

10 60

0 40

20 -10

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

Assessment of factors that impede output Expectations of producer prices for next 12 growth, percentage of responses months, balance of responses 0 20 40 60 100 Weak demand

Lack of working assets 80

Qualified staff shortage 60 High raw material and supplies prices

High energy prices 40

Tax burden 20 Political situation

Exchange rate fluctuations 0 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Regulatory burden Purchase prices Selling prices Corruption Per-unit production costs Insufficient production Q2 20 capacity Q1 20 Limited availability of loan

4 Business Outlook Survey of Poltava 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 75 75

Energy prices 60 60 Raw material and supplies prices 45 45 Wage costs

30 30 Demand

Exchange rate 15 15

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

Q2 20 Q1 20 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 30 0 20 40 60 80

High loan rates 20

Collateral requirements

10 Other funding sources

0 Complicated paperwork Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 *The dif f erence between the percentages of responses “tightened” and “eased” Uncertainty about ability to Q2 20 meet debt obligations as Q1 20 they fall due

Exchange rate fluctuations

5