Ukraine is experiencing an intense heat wave, with temperatures reaching 40 degrees Celsius (104 degrees Fahrenheit). The situation is exacerbated by frequent power outages, lasting 15 to 18 hours a day, rendering air conditioners useless. These power shortages, the result of significant damage to Ukraine’s power infrastructure caused by Russian military actions in March and April 2024, are profoundly impacting Ukrainians’ daily lives and business operations.
The ongoing conflict with Russia is the primary factor affecting all aspects of life in Ukraine, creating an atmosphere of uncertainty that heavily impacts economic activities. This uncertainty shapes business expectations and behaviors. Despite these challenges, businesses have weathered the storm and shown remarkable resilience in adapting to these adverse conditions. The latest results from a monthly company survey reflect this inspiring sentiment.
In June 2024, a survey of 523 industrial enterprises revealed that production growth has slowed amid the ongoing power outages. While short-term expectations have worsened (though optimistic), the outlook for the next six months remains remarkably high, instilling a strong sense of hope for the future and a belief in businesses’ resilience.
Despite the difficulties, businesses have demonstrated an impressive ability to adapt. Let’s analyze this thesis by components.
Power Outages
Power outages, which began in March 2024 because of severe attacks carried out by Russian forces with cruise and ballistic missiles and drones on maneuverable generation facilities across Ukraine, became the No. 1 obstacle to doing business in June. 65% of those surveyed chose this as their number one obstacle. Our survey shows over half (52%) of enterprises suspended operations due to power outages in May 2024.
Chart 1. Interruptions with electricity as an impediment to doing business, % of respondents
However, the situation is significantly better than in 2022 and early 2023 due to businesses’ better preparedness for a blackout. Thus, according to our respondents, on average, they lost 8% of their working time in May 2024 due to power outages, while in November and December 2022, this figure was 21% and 23%, respectively. This significant improvement should reassure us about businesses’ resilience in adversity.
Decrease in Short-Term Optimism and Wait-And-See Attitude of Business
One of the possible signals of the impact of power outages is the trend towards a decrease in optimism and deterioration of business plans, which we have been observing since March 2024 (just since the first devastating attacks on the maneuverable generation of Ukraine). Thus, the share of enterprises that planned to increase production volumes in the next 3 months decreased from 54% in March to 39.6% in June 2024. Although, in our opinion, it remains high enough to assert business optimism.
“Optimists” did not become “pessimists” (the share of enterprises, as predicted, reduced production at this time remained practically unchanged (4.1% in March, 4.9% in June). Still, the share of respondents who do not plan to change production volumes increased (from 41.4% in March to 55.3% in June 2024, respectively). This indicates the caution of business but not the desire to part with positive intentions for growth.
Chart 2. Production expectations for three months, % of enterprises
It Is Dangerous to Work
Another limiting factor to the growth and integral part of the Ukrainian business environment during the war is the physical danger of working. The increase in the number of missile attacks by Russia and the escalation on the battlefield in late 2023 and early 2024 has led to a significant increase in respondents who believe it is dangerous to work as an obstacle to doing business.
In December, there were 53% of them, then there was a slight decrease, and in the last three months, the number of respondents who believe that it is dangerous to work interferes with the work of business is 54.8%, 55.8%, and 53.3%. In April and May, this obstacle topped the list and was pushed back by the issue of power outages in June 2024.
However, while the importance of this obstacle increased (38.8% in November 2023 to 54.4% in April 2024), there was no deterioration in short-term business expectations. On the contrary, the share of respondents who expected a decrease in output decreased from 6.3% in November 2023 to 2.5% in February 2024 and then 3.4% in April 2024). That is, “unsafe to work” has become an attribution of the Ukrainian business environment. Still, under the conditions that the level of escalation does not change, nothing affects the behavior of businesses (operational intentions) operating in Ukraine. However, we assume it is a key factor limiting the intention to grow.
Chart 3. Short-term production expectations in the background of insecurity and electricity outages, % enterprises
Semi-Annual Expectations
Against the background of the trends described above, expectations for six months both regarding the situation at the enterprise itself (which the respondents are best aware of) and the general economic situation (where the opinion of the respondents is formed not only under the influence of objective factors but also as a result of the influence of other factors, for example, the media and social networks, information from acquaintances, etc.) are constantly improving.
Since November 2023, 37.2% of respondents expected that their enterprise’s financial and economic situation would improve, and then in June, there were already 58.0% of them. The share of those who said it had deteriorated was 7.4% and 7.2%, respectively. And while the share of “optimists” between November 2023 and June 2024 consistently increased, the share of “pessimists” fluctuated, but as a result, it practically did not change. As for expectations about the general economic situation, the share of optimists between November 2023 and June 2024 also increased from 37.3% to 57.7%, and the share of “pessimists” also remained practically unchanged (7.4% and 7.2%, respectively).
Chart 4. Expected changes in the overall economy in 6 months, % of enterprises
What Is Reason for Such Optimism?
The data of our study will not give an answer to the question for sure. However, self-confidence and faith in victory are the factors that add grounds for optimism. Even under an air conditioner that does not work at +38 degrees Celsius, Ukrainian business remains optimistic and works.
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