„At each edition of our survey on The Business Outlook in Romania, we ask decision-makers about the projected growth in turnover, profit, investments, salary levels in the first half of the year, and validate the consistency of their forecasts in the second half of the year. The edition for the second half of 2018 shows that the business outlook continues to be rather negative. Comparative data with the first half of 2018 reveals this evolution. For most respondents, the forecasts for turnover and profit growth are being adjusted downwardly. The appetite for investment continues to erode. The opportunities for 2018 – economic growth, consumption, and exports – are offset by the challenges of labor shortages, low productivity and rising costs”, says Constantin Măgdălina, Emerging Trends & Technologies Expert, co-author of this survey.
Compared with the findings of the survey conducted in the first half of 2018, the prospect of company growth continues to be conservative. In the second half of the year, we see a 9pp (percentage point) decrease in companies expecting higher turnover by 5%-10%, but also a 5pp increase for those who forecast a lower turnover of 10%-20%, followed by an increase of 6pp for those who expect a lower turnover of 5%-10% this year. At the industry sector level, 20% of the IT companies, 18% of the industrial production companies, and 14% of the companies in trade are forecasting a 20%-30% growth in turnover.
Profit forecasts in the second half of 2018 are more pessimistic than those at the beginning of the year. Although 16% of companies (up from 14% previously) expect their profit to grow by 10%-20% this year, we see 9pp and 5pp decreases on 1%-5% and 5%-10% brackets. The percentage of companies that say their profit will be lower in 2018 from rises from 12% in the first half of the year to 30% in the second half. The most important increase of the profit, of over 30%, is foreseen by the 30% of IT companies, followed by 15% in industrial production and of 13% in construction and real estate with a forecasted profit growth of 20%-30%.
According to the findings of the survey for the second half of 2018, 27% of companies say they will not increase investments this year, compared to only 18% at the beginning of the year. We also note that 49% of businesses want to increase their investment by 1%-10% compared to 46% previously, while only 10% of companies say they will increase their investment by 20% to over 30% in the second half of 2018, compared with 15% at the beginning of the year. Most companies in agriculture (33%), those in industrial production (31%) and IT (30%) say they will increase investments by 5%-10% this year.
"The research on The Business Evolution in Romania is a tool for dialogue with the business environment. The results of this survey capture the dynamics of top executives’ perception by adding the results of each edition. In the second half of 2018, we find a further decline in the confidence that the main business indicators will have a favorable evolution. With some exceptions, industries such as industrial production, IT, trade, services, agriculture are in line with the general trend. Confidence in favorable developments is declining in the second half of 2018. This year, companies are betting on smaller turnover, profit, or investment growth", says Elena Badea, Managing Director, Valoria.
Number of employee forecasts
In the second half of 2018, 40% of Romanian companies said they will not change the number of employees this year compared to 24% at the beginning of the year. At the same time, only 43% of companies compared to 63% previously say they expect their staff to grow this year. Moreover, 17% of companies expect their number of employees to decline in the second half of 2018, compared to 13% in the first half.
From an industry sector perspective, 31% of industrial production firms, 29% in professional services, 28% in retail and wholesale trade, 17% in agriculture say they will increase the number of employees between 1%-5% in 2018.
If at the beginning of 2018, 17% of companies said they would not make wage increases, in the second half the percentage rose to 29%. The percentage of companies that say they will raise wages by 1%-5% in 2018 drops by 4pp, as compared to the previous semester. Adjustments are also found for companies expecting salaries to grow by 5%-10% (-6pp) and those expecting salary increases of 10%-20% (-4pp). The industries sectors that estimate the most significant increase in wages are: 23% of industrial production firms, 22% of IT firms and 22% of companies in agriculture that are targeting a 10%-20% wage increases.
Top 5 challenges and opportunities
The most important challenges for companies in the second half of 2018 compared to the first half of the year are the following: labor shortage (61% vs. 59%), productivity growth (48% vs. 37%), increased costs (41% vs 21%), employee motivation (37% vs. 25%) and tax changes (21% vs. 62%).
The most important opportunities for companies in the second half of 2018 compared to the first half of the year are the following: economic growth (60% vs. 72%), growth in consumption (69%), growth in exports and the opening of other markets (45% vs. 52%), digitization and online opportunities (40% vs. 41%) and European funds for SMEs (29% vs. 36%).