Companies say 2018 will be bad for business

Companies say 2018 will be bad for business

According to the study "Business outlook in 2018" released today by Valoria and conducted in partnership with Doingbusiness.ro, the percentage of companies expecting to decrease profits is twice higher than at the beginning of last year and those who say they do not increase investments is 18% in 2018 compared to only 10% at the beginning of 2017.

On the question 'how do you think the year 2018 will be for business versus 2017?', the total score of answers expressed on a scale from 1 - totally unfavorable to 10 - totally favorable was 4.4.

„The survey Business outlook in 2018 means the continuation of the research that we started in 2013 on the business environment in Romania. Every year, we ask managers the most important questions about turnover, profit, investment, or salary. This analysis shows the business sentiment of Romanian companies at the beginning of 2018. Unfortunately, comparative data with the same period of 2017 indicate a deterioration thereof. The appetite for investment continues to erode, for most respondents, the minimum wage increase affects profitability, and the confidence that 2018 will be more favorable than 2017 is at extremely low rates. The paradox of 2017 continues on a small scale and in 2018 - economic growth and moral recession, following fiscal and legislative developments in recent months”, says Constantin Magdalina, Emerging Trends & Technologies Expert, co-author of the research.

Evolution of turnover

Compared to the early 2017 edition, companies are more conservative regarding turnover growth rates. Research results indicate an increase of 7pp (percentage points) of companies expecting higher turnover by 5%-10%, offset by a 4pp decrease of those who forecast a turnover increase of 20% -30 % and a decline of 3pp for those who expect more than 30% of the turnover this year. At industry level, the top 10%-20% increase in turnover is forecasted by 24% of IT firms and 37% of pharmaceutical and healthcare firms.

Evolution of profit

At the beginning of 2018, profit forecasts are more pessimistic than at the beginning of last year. Although 24% of companies (up from 18% previously) expect their profit to grow by 5%-10% this year, we see decreases of 3pp to 7pp on all significant growth levels. It also increases from 6% to 12% the number of companies that say their profit will fall this year compared to last year. The most important increase in profit, 10%-20%, is foreseen by the agriculture and food companies and those in the pharmaceutical and healthcare industry.

The evolution of investments

According to research results, 18% of companies say they will not increase investment in 2018 compared with only 10% in 2017. In 2018, that 46% of companies want to increase their investments by 1%-10% compared to 36% in the previous year. Moreover, only 6% of companies say they will increase investments by 20%-30% in 2018, compared with 17% in 2017. Most energy and utilities (50%) say they will increase investments by 1%-5% this year, whilst most companies in agriculture and food (25%) say they will increase investments by 10%-20%.

„The research Business outlook in 2018 is a timely approach to communicating with the business environment in Romania. Beyond the official macroeconomic picture, the results of this research capture the dynamics of decision makers' perception by adding yearly results of each edition. At the beginning of 2018, the survey results indicate the depreciation of business sentiment as compared to the beginning of 2017. Wherever they appear, the increases are either marginal or lower. Much distrust is given to the favorability of economic developments in 2018 compared to 2017. If we consider that the currency in the economy is the trust, then its absence increases the cost of doing business in Romania and functions as a self-fulfilled prophecy”, says Elena Badea, Managing Partner Valoria.

Evolution of the number of employees

24% of Romanian companies do not expect any increase in the number of employees in 2018 compared to only 17% in the previous year. At the same time, 63% of companies, compared to 79% previously, say they expect their staff to grow this year. Furthermore, 13% of companies expect their number of employees to decrease in 2018, compared with 4% in 2017.
At industry level, 35% of industrial manufacturing firms, 27% of construction and real estate, 31% of the agriculture and food industry, 40% of telecommunications and 37% of energy and utilities say they will maintain in 2018 the same number of employees as in 2017.

Evolution of salary levels

If in early 2017, 4% of companies did not forecast wage increases, in 2018 the percentage rose to 17%. The percentage of companies that will increase salaries by 1% -5% in 2018 goes up by 8pp as compared to the previous year. Adjustments are to companies expecting salaries to grow by 5% -10% (-11pp) and those expecting salary increases of 10% -20% (-9pp).
The increase of the minimum gross national salary guaranteed in payment from 1450 lei to 1900 lei from 1 January 2018 affects the companies mainly by decreasing the profitability (70%). On the second place in terms of impact, 29% of companies say it is above the sustainability threshold for labor costs, and third place 24% of companies have reduced the number of employees. 20% of companies say they are not affected by this change and only 1% have checked the entry into insolvency and the temporary suspension of the company's activity.

Top 5 Challenges and Opportunities

The most important challenges for companies in early 2018 are the following: tax changes (62%), lack of workforce (59%), improving productivity (37%), motivating employees (25%) and rising costs (21%).
The most important opportunities for companies in early 2018 are the following: economic growth (72%), growth in consumption (69%), growth in exports and opening up other markets (52%), digitization and online opportunities (41%) and access to European funds and SME funding (36%).

„The Business outlook in 2018 survey is differentiated by the traceability, comparability and statistical relevance of hundreds of respondents in Romania. Our research summarizes the opinion of Romanian companies regarding the main indicators relevant to them. The results indicate distrust in economic developments in 2018. Independent of the peculiarities of each industry, the comparative analysis with similar data in the same period of 2017 shows the negative evolution of the main indicators. Under the growing pressure from the operating environment, companies are becoming more cautious. The confidence score that companies in Romania give to the operating environment shows the need for a review of the proposed and approved fiscal and legislative measures”, says Dumitru Ion, CEO Kompass Romania and Doingbusness.ro.