Business Outlook Survey Results of surveys of Vinnitsa region * enterprises of managers Ivano-Frankivsk regarding O blasttheir business expectations * Q2 2020 This survey wasI conducted квартал after 2018 the government року announced it would relax the quarantine

*Надані результати*This survey є відображенням only reflects the лишеopinions думки of respondents респондентів in Ivano – керівників-Frankivsk підприємств oblast (top managersВінницької of області в IІ кварталіcompanies) 2018 року who і wereне є прогнозамиpolled in Q2 та20 20оцінками, and does Національного not represent банку NBU forecastsУкраїни. or estimates

Business Outlook Survey of Ivano-Frankivsk Oblast Q2 2020

A survey of companies carried out in Ivano-Frankivsk oblast in Q2 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 on the back of the quarantine. Respondents expected that prices would rise. Depreciation expectations remained high.1

The top managers of companies expected that over the next 12 months: . the output of Ukrainian goods and services would drop rapidly: the balance of expectations was (-62.5%) (this was the most pessimistic view across the regions) compared to 0.0% in Q1 2020 (Figure 1) and (-34.1%) across

. prices for consumer goods and services would grow: 50.0% of respondents expected the inflation rate to be lower than 7.5% compared with 54.9% across Ukraine. Respondents referred to the exchange rate as the main inflation driver (Figure 2). Respondents reported a noticeable increase in the impact of the supply (availability) of money

. the domestic currency would depreciate significantly: 81.3% of respondents (compared with 80.0% in the previous quarter) expected the hryvnia to weaken against the US dollar, with a figure of 68.2% across Ukraine

. the financial and economic standings of their companies would deteriorate at a faster pace: the balance of responses was (-25.0%) compared with (-6.3%) in the previous quarter and (-1.8%) across Ukraine (see Table)

. total sales would decrease: the balance of responses was (-26.7%) compared with 12.5% in the previous quarter. Respondents also expected a decrease in external sales (the balance of responses was (-20.0%) compared with 0.0% in Q1 2020). Overall, companies across Ukraine expected that sales would decrease only slightly, the balances of responses being (-0.1%) and (-0.7)% respectively

. investment in construction and in machinery, equipment and tools would decrease significantly: the balances of responses were (-31.3%) and (-37.5)% respectively compared with (-6.3%) and 0.0% in the previous quarter. Across Ukraine, the balances of responses were (-16.1%) and (-10.5%) respectively . staff numbers would decrease (such expectations have persisted for four quarters in a row): the balance of responses was (-25.0%) compared with (-18.8)% in Q1 2020 and (-17.3%) across Ukraine (Figure 4) . both purchase and selling prices would grow at a slower pace: the balances of responses were 56.3% and 37.5% respectively (compared to 73.3% and 60.0% in the previous quarter) (Figure 6). Some 62.5% of respondents said that wage costs were the main selling price driver (Figure 7). The impact of demand, global prices and domestic competition strengthened noticeably

. the growth in per-unit production costs would accelerate: the balance of responses was 62.5% compared with 43.8% in Q1 2020. Meanwhile, wage costs per staff member were expected to increase at a much slower pace: the balance of responses was 31.3% (compared with 68.8% in the previous quarter) (Figure 4, 6). Weak demand and the unstable political situation were cited as the main drags on the ability of companies to boost production (Figure 5). Expectations of borrowing needs in the near future picked up (Figure 8). Half of the polled companies planned to take out corporate loans and preferred domestic currency ones. Respondents said that lending standards had tightened (Figure 9). Respondents referred to uncertainty about their ability to meet debt obligations as they fall due as the main factor that deterred them from taking out loans (Figure 10). All of the respondents reported having 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 (-18.8%) compared with 6.3% in the previous quarter and (-11.6%) across Ukraine).

. Finished goods stocks had increased and were assessed at a level higher than the normal one: the balance of responses was 25.0% compared with (-12.5%) in Q1 2020.

. Spare production capacity had increased. Companies had a sufficient amount of unutilized production capacity to meet any unexpected rise in demand: the balance of responses was 20.0% compared with (-37.5%) in Q1 2020.

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

2 Business Outlook Survey of Ivano-Frankivsk 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,% Exporters only Other Agriculture Large (more Neither exporters 7.1 12.5 18.8 than 250 Small (up to 50 nor importers Transport and persons) persons) 50.0 Imports only communications 25.0 50.0 14.3 12.5 Mining 6.3

Manufacturing Wholesale and 12.5 retail trade Both exporters 18.8 and importers 28.6 Energy and Medium (from 51 and up Construction water supply to 250 persons) 6.3 12.5 25.0

. Period: 6 through 28 May 2020. . A total of 16 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 Oblasts4, %

Riv ne Oblast Voly n Oblast Oblast 103.1 90.5 Zhy tomyr 85.5 Oblast Oblast 87.1 125.7 Ky iv and Lv iv Oblast Ky iv Oblast Poltav a Oblast Oblast 105.0 Oblast 92.4 81.4 92.1 97.8 Khmelny tskyi Oblast Iv ano-Frankivsk Oblast Vinny tsia Oblast 89.8 Oblast 102.0 Oblast 93.2 no data 70.9 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 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 Ivano-Frankivsk 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 23.5 16.7 11.1 -6.3 -25.0

Total sales 33.3 22.2 27.8 12.5 -26.7

Investment in construction -16.7 -12.5 0.0 -6.3 -31.3

Investment in machinery, equipment and tools 0.0 -11.1 22.2 0.0 -37.5

Staff numbers 5.6 -11.1 -5.6 -18.8 -25.0

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 Ivano-Frankivsk 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 80 80 Exchange rate 60 60 40 40 Supply (availability) of 20 20 money 0 0 Household income -20 -20 -40 -40 -60 -60 Production costs -80 -80 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Global prices Output will decrease Output will be unchanged Output will increase Balance of expectations (right scale) Tax changes Q2 20 Q1 20

Budgetary social spending

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 40 80

20 60

0 40

-20 20

-40 0

-20 -60 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 -40 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

Political situation 80

Lack of working assets 60 High energy prices

Exchange rate fluctuations 40

Qualified staff shortage 20 Regulatory burden

High raw material and 0 supplies prices Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Insufficient production capacity Purchase prices Tax burden Selling prices Per-unit production costs Limited availability of loan Q2 20 Q1 20 Corruption

4 Business Outlook Survey of Ivano-Frankivsk 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 60 60

Wage costs

45 45 Demand

Exchange rate 30 30

Raw material and supplies prices 15 15 Global prices

Domestic competition 0 0 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Energy prices Percentage of respondents who intend to take out loans Borrowing needs (balance of responses, right scale) Tax burden 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 50 0 20 40 60 40 Uncertainty about ability to 30 meet debt obligations as they fall due 20

10 Collateral requirements

0

-10 High loan rates

-20

-30 Exchange rate fluctuations Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 *The dif f erence between the percentages of responses “tightened” and “eased” Q2 20 Complicated paperwork Q1 20

Other funding sources

5