Business Activity Recovery Index Falls to Nearly -0.2 for the First Time in Three Years – IER Survey

• The Business Activity Recovery Index dropped to minus 0.17 in May: This is the lowest value since March 2023.
• Average order book has shrunk sharply to only 2.4 months.
• Uncertainty is decreasing for the 3–6 month horizon, but increasing for the two-year horizon.
• The share of enterprises reporting price increases for raw materials, supplies, and finished products—or expecting further growth—has decreased.

The Business Activity Recovery Index (BARI) has declined for the second consecutive month, falling to minus 0.17 in May from minus 0.11 in April. This is the lowest BARI reading since March 2023, which implies that there are now more enterprises feeling worse than they did a year ago than those feeling better.

This is evidenced by the results of the 49th monthly survey conducted by the Institute for Economic Research and Policy Consulting (IER) in May among 469 industrial enterprises.

Traditionally, micro-businesses feel the worst, but small businesses are catching up; BARI values have significantly worsened for medium, small, and micro-enterprises. Only for large enterprises did the BARI increase slightly and remain the highest, although it was still negative (-0.04).

The aggregated indicator of industrial prospects has declined for the second month in a row, from 0.11 to 0.06. Meanwhile, production capacity utilization compared to pre-war levels worsened slightly in May: the total share of enterprises operating at full or near-full (75–99%) capacity dropped from 60% to 57%. Conversely, the share of those working at 50–74% of pre-war capacity increased by 2 percentage points.

“Based on the results for May, we are observing signs of a slowdown in economic recovery, and they are becoming increasingly noticeable. At the same time, business sentiment remains resilient, and key expectations are stabilizing despite the prolonged impact of personnel and security constraints,”said Oksana Kuziakiv, Executive Director of the IER.

Uncertainty over a three-month horizon has decreased regarding production, sales, and exports. Now, only one in nine exporters (11.1%) is unable to forecast their quarterly prospects. At the same time, uncertainty regarding new orders and the number of employees has increased.

Uncertainty over a six-month horizon has also decreased—both regarding the general economic environment in the country (from 28% to 27.7%) and the financial and economic situation of individual enterprises (from 25.3% to 23%).

Conversely, over a two-year horizon, uncertainty has risen to 43.5%.

“Among those who were able to forecast the situation over a two-year horizon, 84.7% do not plan any changes. 3.2% of those surveyed plan to downsize, while 12% plan to expand,” reported Oksana Kuziakiv.

Production results have interrupted a two-month growth trend. The production change index worsened from 0.18 to 0.08 due to a decrease in the share of enterprises increasing production volumes—from 26.6% to 19.7%.

The index of expected production changes fell from 0.34 to 0.25 due to a further decrease in the share of enterprises planning to increase production volumes in the next 3–4 months (from 37.1% to 28.3%). At the same time, the share of those planning to cut production is only 3.4%, which is a positive signal.

Exports also show deterioration: the change index fell from 0.17 to 0.07, and the index of expected changes fell from 0.33 to 0.25. In May, only 20% of respondents recorded export growth, and only 28.5% of enterprises expected growth in the next three months.

“The average portfolio of new orders shrank from 2.9 months in April to 2.4 months in May, even though it was 3.8 months back in March. At the same time, the share of enterprises with orders for 1–2 months rose from 33% to 37%. This is the highest figure since October 2024. Another 30% of enterprises are working ‘on the fly,’ meaning they have orders for less than a month. And, unfortunately, in May, the share of those with orders for 12 months or more dropped from 6% to 3%. Long-term orders have been exhausted,” noted Oksana Kuziakiv.

Thus, a record 67% of enterprises have an order portfolio of no more than two months.

The longest order portfolios are held by enterprises in the chemical industry (3.3 months), woodworking (2.6 months), and food industry (2.5 months). The shortest are held by manufacturers of construction materials (1.4 months).

Inflationary pressure has decreased slightly. The share of enterprises reporting rising prices for raw materials and supplies dropped to 38.2%, and for finished products to 35.8%.

Expectations for the next three months have also improved. After 51.6% in April, only 44.5% of enterprises in May expected rising prices for raw materials and supplies. The share of companies expecting price increases for finished goods also fell significantly—from 49.3% to 43%.

“From these data, we can assume that price growth will not occur at the same pace as before,” predicted Oksana Kuziakiv.

The New Monthly Enterprises Survey (NRES) by the IER involves up to 500 Ukrainian industrial enterprises located in 21 out of 27 regions of Ukraine. The survey has been conducted monthly since May 2022.

The video presentation of the May survey results is available here.