In August 2022, the production recovery in Ukraine continued, but the dynamics of the indicators of the economic conditions indicate a possible slowing down of the recovery trend in 6 months perspective.  This is indicated by several important factors.

The rate of growth of the enterprise managers’ optimism has significantly decreased (however, the share of “optimists” exceeds “pessimists,” which is an encouraging fact).

Expectations for the future within six months significantly worsened, the value of the index of expected changes in the financial and economic situation decreased from 0.12 to 0.03. This happened due to an increase in the share of “pessimists” from 18.5% to 20.5%, and, at the same time, a decrease in the share of “optimists” from 31.6% to 22.8%.

Figure 1: Business activity in 6 months

In August, the forecasts of enterprises for the next six months continued the downward trend: the value of the Index of Expected Changes in the General Economic Environment decreased from 0.09 in July to 0.01 in August. Both the share of “optimists” (from 34.2% to 22.3%) and the share of “pessimists” (from 23.3% to 22.6%) decreased.

The Reduction of Uncertainty Has Stopped and Is Increasing on the Short-Term Horizon

The share of respondents who could not give a forecast regarding changes in the financial and economic situation at the enterprise in the six-month perspective decreased from 31.4% to 29.0%, and the general economic environment in the country as a whole – from 33.9% to 33.2 %. In the perspective of three months, the level of uncertainty increased the most for exports (more than doubled, from 6.2% to 13.9%), as well as for production (the value increased from 8.2% to 14.3%).

Production expectations for the next three months remain positive, although there is also a trend to slow growth. The index of expected changes in production decreased from 0.24 to 0.20. The share of enterprises planning to increase production decreased from 33.5% in July to 26.5%, as did the share of those planning to decrease production, from 8.7% to 7.7%.

Figure 2: Production Expectation

Employment expectations have become more cautious. In the next three months, entrepreneurs and enterprise managers expect a slowdown in employment growth (correlated with production expectations): the index of expected changes in the number of employees decreased from 0.11 to 0.04. The percentage of interviewed entrepreneurs who believe that the number of employees will increase decreased from 15.6% to 9.0%,

The stagnation of positive trends is also evidenced by the reduction of problems in finding employees with the required qualifications. In August, compared to July, the value of the difficulty of finding labor for skilled workers decreased from 0.18 to 0.06, for unskilled workers it changed slightly, decreasing from -0.06 to -0.07.

Figure 3: Expected events [% of respondents]

The main reasons for such expectations are the continuation of the active phase of the Russian war and the “postponement of victory”, the devaluation of the hryvnia that took place in August, and the uncertainty regarding the duration of the simplified tax regimes introduced during the martial law. This is evidenced by the rating of expected measures and events that will improve the situation for the enterprises presented in the chart.

Against the background of such expectations, in our opinion, the counteroffensive and military successes of the armed forces of Ukraine in the Kharkiv region will significantly affect the improvement of the optimism of Ukrainian enterprises in September.

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