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

*This survey only reflects the opinions of respondents in Mykolaiv oblast (top managers of companies) who were polled in Q3 2020, and does not represent NBU forecasts or estimates

Business Outlook Survey of Mykolaiv Oblast Q3 2020

A survey carried out in Mykolaiv oblast in Q3 2020 showed that respondents expected a significant drop in the output of Ukrainian goods and services and weaker performance of their companies over the next 12 months amid the extended adaptive quarantine. Inflation and depreciation expectations remained high.

The top managers of companies said they expected that over the next 12 months: ▪ the output of Ukrainian goods and services would drop rapidly: the balance of expectations was (-37.5%) (one of the lowest figures across the regions) compared with (-56.3%) in Q2 2020 and (-16.1%) across (Figure 1)

▪ prices for consumer goods and services would increase: 56.3% of respondents expected the inflation rate to be higher than 7.5% compared with 62.5% in the previous quarter and 44.4% across Ukraine. Respondents referred to production costs and the exchange rate as the main inflation drivers (Figure 2)

▪ the hryvnia would depreciate significantly: 87.5% of respondents (as 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 at a lower pace: the balance of expectations was (-6.7%) compared to (-37.5%) in the previous quarter (see Table). Companies across Ukraine expected an improvement in their financial and economic standings (4.4%)

▪ total sales would increase: the balance of responses was 6.3% compared with (-31.3%) in the previous quarter. External sales were expected to decrease: the balance of responses was (-16.7%) compared with 20.0% in Q2 2020. Overall, companies across Ukraine expected sales to increase moderately, the balances of responses being 9.8% and 4.3% respectively

▪ investment both in construction and in machinery, equipment, and tools would decrease: the balances of responses were (-31.3%) and (-18.8%) respectively (compared to (-43.8%) for each in Q2 2020). Across Ukraine, the balances of responses were (-4.7%) and 5.2% respectively

▪ staff numbers at their companies would decrease: the balance of responses was (-26.7%) compared with (-50.0%) in Q2 2020 and (-10.8%) across Ukraine (Figure 4)

▪ purchase prices would rise at a faster pace (the balance of responses was 93.8%) than selling prices (the balance of responses was 43.8%) (compared with 87.5% and 37.5% in the previous quarter) (Figure 6). The exchange rate and energy, raw material, and supplies prices 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 43.8% and 60.0% respectively (compared with 25.0% and 40.0% in Q2 2020). Respondents referred to high raw material and supplies prices as the main drag on the ability of their companies to boost production (Figure 5). The impact of the weak demand was assessed significantly higher than in the previous quarter.

Respondents expected a slower increase in their borrowing needs in the near future (Figure 8). 50.0% of the respondents that planned to take out bank loans opted for domestic currency loans. Respondents said that bank lending standards had tightened (Figure 9). High loan rates were cited as the major factor that deterred companies from taking out loans (Figure 10). A total of 93.8% of 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 satisfactory: the balance of responses was 0.0% (compared with (-12.5%) in the previous quarter). Across Ukraine, respondents assessed their current financial and economic standings as positive, with a balance of responses of (-5.6%) across Ukraine.

▪ Finished goods stocks were assessed at a level lower than the normal one: the balance of responses was (-40.0%) compared with (-55.6%) in Q2 2020.

▪ Companies had a sufficient amount of unutilized production capacity to meet any unexpected rise in demand: the balance of responses was 12.5% (compared with 18.8% in Q2 2020).

2 Business Outlook Survey of Mykolaiv 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 Small (up to 50 12.5 Both exporters persons) Neither exporters and importers 18.8 Agriculture nor importers 37.5 Transport and 25.0 62.5 communications 12.5 Large (more than 250 persons) 43.8

Wholesale and retail trade 18.8 Manufacturing Medium (from 51 and up Energy and 25.0 to 250 persons) water supply 37.5 6.3 ▪ Period: 5 through 31 August 2020. ▪ A total of 16 companies were polled. ▪ A representative sample was generated on the basis of the agricultural and manufacturing sectors. Business outlook index for next 12 months in terms of regions,% Business Outlook Index for Next 12 Months in Terms of Regions3, %

Riv ne Oblast Voly n Oblast Oblast 95.9 102.9 103.9 Oblast Oblast 109 111.4 Ky iv and Oblast Ky iv Oblast 107.2 Poltav a Oblast Oblast Oblast 105.1 98.6 106.3 119.3 Khmelny tskyi Oblast Iv ano-Frankivsk Oblast Vinny tsia Oblast 79.2 Oblast 113.2 Oblast 92.4 no data 105.3 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 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 Mykolaiv 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 12.5 12.5 20.0 -37.5 -6.7

Total sales 43.8 33.3 56.3 -31.3 6.3

Investment in construction -11.8 0.0 13.3 -43.8 -31.3

Investment in machinery, equipment and tools 11.8 17.6 33.3 -43.8 -18.8

Staff numbers -31.3 -16.7 -6.3 -50.0 -26.7

1 This sample was generated in proportion to the contribution of each region and each economic activity to Ukraine’s gross value added. 2 Data for totals and components may be subject to rounding effects. 3 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 Mykolaiv 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

80 80 Exchange rate 60 60

40 40 Production costs 20 20

0 0 Global prices

-20 -20 Household income -40 -40

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

Budgetary social spending

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

20 80 60 0 40

-20 20 0 -40 -20

-40 -60 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 60 100 High raw material and supplies prices Weak demand 80

High energy prices 60 Exchange rate fluctuations

Political situation 40

Tax burden 20 Regulatory burden

Lack of working assets 0 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Qualified staff shortages Purchase prices Selling prices Corruption Per-unit production costs Limited availability of loan Q3 20 Insufficient production Q2 20 capacity

4 Business Outlook Survey of Mykolaiv 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 75 75 Exchange rate

Raw material and supplies 60 60 prices

Energy prices 45 45

Global prices 30 30

Wage costs 15 15 Domestic competition 0 0 Demand 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) 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

20 High loan rates

10 Exchange rate fluctuations 0

Complicated paperwork -10

-20 Other funding sources Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 *The difference between the percentages of responses “tightened” and “eased” Q3 20 Collateral requirements Q2 20

Uncertainty about ability to meet debt obligations as they fall due

5