Business Outlook Survey Results of surveys of Vinnitsa region * enterprises managers of Zakarpattia regarding O blasttheir business expectations * Q3 2020 I квартал 2018Q2 2018року

*Надані результати*This є survey відображенням only reflects лише the opinions думки респондентівof respondents – inкерівників Zakarpattia підприємств oblast (top managersВінницької of області в IІ кварталіcompan 2018ies) року who і wereне є прогнозамиpolled in Q3 та20 20оцінками, and does Національного not represent банку NBU України.forecasts or estimates

Business Outlook Survey of Zakarpattia Oblast Q3 2020

A survey of companies carried out in Zakarpattia oblast in Q3 2020 showed that respondents expected no change in the output of Ukrainian goods and services over the next 12 months amid the adaptive quarantine regime. Respondents were pessimistic about the future performance of their companies over that period. Respondents also reported moderate inflation and higher depreciation expectations.

The top managers of companies said they expected that over the next 12 months: ▪ the output of Ukrainian goods and services would remain unchanged: the balance of expectations was (0.0%) compared with (-45.5%) in Q2 2020 (Figure 1) and (-16.1%) across Ukraine

▪ prices for consumer goods and services would rise moderately: 70.0% of the surveyed companies said that growth in the prices of consumer goods and services would not exceed 7.5% (compared to 72.7% in the previous quarter and 55.6% across Ukraine). Respondents referred to the exchange rate as the main inflation driver (Figure 2)

▪ the domestic currency would depreciate significantly: a total of 90.9% of respondents (compared to 72.7% in the previous quarter) expected the hryvnia to weaken against the US dollar, the figure across Ukraine being 83.2%

▪ the financial and economic standings of their companies would deteriorate: the balance of expectations was (-9.1%) (compared with 18.2% in the previous quarter). Companies across Ukraine expected an improvement in their financial and economic standings (4.4%) (see Table)

▪ total sales would remain unchanged: the balance of responses was 0.0% compared with 18.2% in the previous quarter (see Table). External sales were expected to decrease: the balance of responses was (-20.0%) (compared with 16.7% in the previous quarter). Overall, companies across Ukraine expected sales to increase moderately, the balances of responses being 9.8% and 4.3% respectively

▪ investment in construction would decrease at a slower pace: the balance of responses was (-9.1%) compared to (-30.0%) in Q2 2020. Investment in machinery, equipment, and tools was expected to increase: the balance of responses was 9.1% compared to (-9.1%) in Q2 2020. The balances of responses across Ukraine were (-4.7%) and 5.2% respectively

▪ staff numbers at their companies would decrease: the balance of responses was (-18.2%) compared with 0.0% in Q2 2020 and (-10.8%) across Ukraine (Figure 4)

▪ both purchase and selling prices would rise at a faster pace: the balances of responses were 81.8% and 63.6% respectively (compared to 63.6% and 36.4% in Q2 2020) (Figure 6). Wage costs and the exchange rate were cited as the main selling price drivers (Figure 7)

▪ the growth in per-unit production costs and wage costs per staff member would accelerate: the balances of responses were 27.3% and 45.5% respectively (compared with 18.2% and 27.3% in Q2 2020) (Figures 4 and 6). Weak demand continued to be cited as the main drag on the ability of companies to boost production (63.6% of respondents) (Figure 5). Expectations of borrowing needs in the near future decreased significantly (Figure 8). The respondents that planned to take out corporate loans usually opted for domestic currency ones. Respondents said that bank lending standards had tightened (Figure 9). Respondents referred to high loan rates as the main factor that deterred them from taking out loans (Figure 10). All of the respondents said that they had encountered no difficulties in effecting transactions with funds deposited in bank accounts (96.6% 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 were assessed as bad: the balance of responses was (-18.2%) compared with (-9.1%) in the previous quarter and (-5.6%) across Ukraine (Figure 3).

▪ Finished goods stocks had increased and were assessed at a level higher than the normal one: the balance of responses was 1.4% (compared with 0.0% in Q2 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 18.2% (compared to 27.3% in the previous quarter).

2 Business Outlook Survey of Zakarpattia Oblast Q3 2020

Survey Details1,2

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

Other Neither exporters Exporters only nor importers 18.2 Small (up to 50 20.0 40.0 persons) Agriculture 27.3 27.3

Imports only Transport and 10.0 communications 18.2 Manufacturing Both exporters Wholesale and 18.2 Medium (from 51 and up and importers retail trade to 250 persons) 30.0 18.2 72.7

▪ Period: 5 August through 26 August 2020. ▪ A total of 11 companies were polled. ▪ No economic activity was able to generate a representative sample.

Business outlook index for next 12 months in terms of regions,% Business Outlook Index for Next 12 Months in Terms of Oblasts3, %

Riv ne Oblast Voly n Oblast Chernihiv Oblast 95.9 102.9 Zhytomyr 103.9 Sumy Oblast Oblast 109 111.4 Ky iv and Lviv Oblast Ky iv Oblast 107.2 Poltav a Oblast Kharkiv Oblast Ternopil Oblast 105.1 98.6 106.3 119.3 Khmelny tskyi Cherkasy Luhansk Oblast Iv ano-Frankivsk Oblast Vinny tsia Oblast Zakarpattia Oblast 79.2 Oblast 113.2 Oblast 92.4 no data 105.3 Donetsk 94.5 Cherniv tsi Oblast Kirov ohrad Oblast Dnipropetrov sk Oblast Oblast 99.6 74.7 97.1 no data Zaporizhia My kolaiv Oblast Odesa 84.6 Oblast Oblast 91.2 90.1 Kherson Oblast 106.9 minimum 74.7 1 quartile 93.0 1 quarter 2 quartile (median) 101.3 Crimea 2 quarter 3 quartile 106.8 no data 3 quarter maximum 119.3 4 quarter Ukraine 100.8

*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 Zakarpattia Oblast and Its Components

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

Financial and economic standings 25.0 36.4 0.0 18.2 -9.1

Total sales 8.3 45.5 -18.2 18.2 0.0

Investment in construction 18.2 20.0 20.0 -30.0 -9.1

Investment in machinery, equipment and tools 18.2 36.4 30.0 -9.1 9.1

Staff numbers 8.3 0.0 -54.5 0.0 -18.2

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 Zakarpattia Oblast Q3 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 Exchange rate 60 60

40 40 Production costs 20 20

0 0 Global prices

-20 -20 Budgetary social -40 -40 spending

-60 -60 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Household income Output will decrease Output will be unchanged Output will increase Supply (availability) of Balance of expectations (right-hand scale) money Q3 20 Q2 20

Tax changes

Figure 3 Figure 4

Companies' economic activity as of the time of the Staff level and wage cost expectations for next 12 survey, balance of responses months, balance of responses 40 100 30 80 20 60

10 40

0 20

-10 0

-20 -20 -40 -30 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 -60 Q3 19 Q4 19 Q1 20 Q2 20 Q3 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 growth, percentage of responses months, balance of responses 0 20 40 60 80 100 Weak demand

Qualified staff shortages 80

Political situation 60 Lack of working assets 40 Exchange rate fluctuations

Limited availability of loan 20

High energy prices 0 Insufficient production capacity Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Purchase prices Corruption Selling prices Per-unit production costs Tax burden

High raw material and Q3 20 supplies prices Q2 20 Regulatory burden

4 Business Outlook Survey of Zakarpattia Oblast Q3 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 60 60 Wage costs

Exchange rate 45 45

Demand 30 30 Energy prices

Raw material and supplies prices 15 15

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

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

20 High loan rates

10 Other funding sources 0

-10 Uncertainty about ability to meet debt obligations as they fall due -20

-30 Collateral requirements Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 *The difference between the percentages of responses “tightened” and “eased” Q3 20 Complicated paperwork Q2 20

Exchange rate fluctuations

5