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Deloitte: The sentiment of region’s executives returns to levels of one year ago
10/27/2011 I Source Deloitte
Results of the sixth edition of the Deloitte Business Sentiment Index show that executives in Central Europe are pessimistic about the prospects for their country’s economies in 2012. Overall, sentiment has fallen to the same level as one year ago (110 in the composite index). This drop to October 2010 levels follows five consecutive survey-on-survey increases in sentiment across the region.
Executives’ pessimism, particularly in the north of Central Europe, is driven by fears that the European sovereign debt crisis will worsen and that it will continue to adversely affect the economies of the region in the next six to 12 months.
Findings across the region as a whole reveal that just 16% of executives in Central Europe are optimistic about the general prospects of the region’s economy over the next six months. Some 43% of executives believe the situation will deteriorate in the near future.
However, as in previous surveys, there remain important differences in executives’ opinions on a country-by-country level. Since the onset of the global crisis, the Central European region has been split in two halves in terms of outlook. In the north of the region (Poland, Czech Republic, Slovakia), executives have historically been quite bullish and optimistic about prospects. Countries in the south however (Hungary, Romania and Croatia), have tended to be much more cautious about the economic situation.
A North wind blows…
This sixth survey finds that the positive outlook of executives in Northern economies has been seriously dented. These countries rely heavily on manufacturing, and particularly on exporting goods to Western Europe. As a result, they have suffered most in the region from the effects of the European sovereign debt crisis.
Polish executives are particularly shaken by the crisis in Europe. The country’s sentiment index is now at the same level as in the first edition of the Index in September 2009. Of all the executives surveyed, those in Poland were the most upbeat in 2010 and much of 2011.
Now, only 10% of Polish executives expect an increase in the employment levels of their firms, compared to 36% in June’s survey. There has also been a marked drop in optimism in Poland about expected revenue sales over the next year. Just over three fifths (62%) of Polish executives now expect increased revenue – a significant drop from the 85% expressing this outlook in June.
In the Czech Republic, sentiment has grown more negative on every question in the survey. Over one quarter (27%) of executives are now expecting reduced revenues, compared to 16% in June. Outlook about employment levels is split evenly at 27% each, between those who expect their firms to increase levels and those who expect a decrease over the next 12 months.
Across all six countries surveyed, Slovakia reports the most significant negative shift in sentiment about the prospects for their country’s economy. In June, 84% of Slovak executives were optimistic about the economic outlook. Now, just 12% expect a positive change in the country’s economy – a drop of 72%. Likewise, 52% of executives now expect a decline in the economy, compared to no executives expressing this view in the previous edition. There is a small increase, however, in the proportion of executives who believe credit is now easily available – up to 88% in this survey, compared to 81% in June 2011.
Cautious but stable outlook in the South
In contrast to the pronounced decline in sentiment in the North of the region, the survey finds that whilst there is a deteriorating outlook in the Southern countries, it is less significant than in the North.
Croatian executives are now more cautious about the present availability of credit for their firms with 64% feeling it is easily available while 83% felt this was the case in the previous edition. There is now an increase in the proportion of executives who feel the terms for the payment of dues are unreasonable: 70% now believe this to be the case, up from 53% in the previous two editions of the survey.
However, despite these drops in sentiment, Croatian executives are more optimistic than those in other countries regarding the financial prospects for companies, the likelihood of launching new products and services, and total employment levels at firms over the next 12 months.
Hungary sees the greatest change in sentiment regarding revenues from sales over the next 12 months. In June 2011, 63% expected increased sales. This has now dropped by over half to just 29%. The majority of executives (57%) expect sales revenues to stay unchanged.
As with their counterparts in the south of the region, Hungarian executives were positive about employment levels in their companies over the next 12 months, through the majority (60%) do expect levels to remain the same. Hungary was also the only other country save for Slovakia of the six surveyed that had a stable outlook on capital expenditure over the next 12 months.
In Romania, executives’ outlook about their country’s general economic prospects over the next six months was generally unchanged from the previous survey. This is the most neutral response of all the executives surveyed in the region. Romanian executives were, however, more negative about the financial prospects of their companies. This continues a trend from previous surveys, which has seen positive outlooks in Romania decline 63% in 3Q 10 to 48% in 2Q 11 and now 31% in the latest survey. Countering this deterioration in sentiment, however, Romanian executives did report the most positive change in outlook in the region regarding revenues from sales and acquisition plans over the next 12 months.
It is clear that the deepening sovereign debt crisis in Europe and also the overarching uncertainty in the global markets are causing considerable changes in sentiment in the North of our region. Their much more negative outlook is now more in tune with the consistent caution exercised by their counterparts in the South of the region.
Regardless of the reasons, this muted outlook has resulted in a worrying drop in overall sentiment for the region for the first time since the index was first published in 4Q 09.
Special Economic Zones
As well as the regional and individual country findings, this survey also features a series of questions on Special Economic Zones to gauge how important the promise of public aid for investment in certain territories is to our region’s executives.
• Virtually all respondents (99%) did not see public aid as a decisive factor when they made an investment in the past.
• Only 8% of executives felt that public aid was quite important for a previous investment.
• Two-thirds (67%) of respondents indicated that public aid had not been taken into account at all.
• Manufacturing is the industry most likely to have considered public aid for a previous investment, with 37% of executives reporting that it was at least one of many factors. Only 22% of Retail/Trade executives and 15% of Energy & Resources executives shared this view.
• More than one-third of respondents (38%) indicated that public aid would be at least one of many factors considered when deciding on a new investment location in the future.
• In the Czech Republic and Poland, the majority of executives (67% and 62%, respectively) consider the availability of public aid to be at least one of many factors they will consider when deciding on an investment location in the future. Only 27% of executives in Croatia, Slovakia and Romania expressed this view.
• Manufacturing will be the industry most likely to consider public aid for a future investment; 60% of executives replied that it was at least one of many factors they would consider.
Background to the index
• The index is a research-based analysis of the opinions and predictions of executives from the largest companies in Croatia, Czech Republic, Hungary Poland, Romania and Slovakia.
• Deloitte published the findings of the first Business Sentiment Index in September 2009.
• The sample size encompassed almost 200 executives from the largest companies in the region.
For more details please visit: www.deloitte.com/bsi
###
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/ro/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 182 000 professionals are committed to becoming the standard of excellence.
© 2011 Deloitte Romania
Executives’ pessimism, particularly in the north of Central Europe, is driven by fears that the European sovereign debt crisis will worsen and that it will continue to adversely affect the economies of the region in the next six to 12 months.
Findings across the region as a whole reveal that just 16% of executives in Central Europe are optimistic about the general prospects of the region’s economy over the next six months. Some 43% of executives believe the situation will deteriorate in the near future.
However, as in previous surveys, there remain important differences in executives’ opinions on a country-by-country level. Since the onset of the global crisis, the Central European region has been split in two halves in terms of outlook. In the north of the region (Poland, Czech Republic, Slovakia), executives have historically been quite bullish and optimistic about prospects. Countries in the south however (Hungary, Romania and Croatia), have tended to be much more cautious about the economic situation.
A North wind blows…
This sixth survey finds that the positive outlook of executives in Northern economies has been seriously dented. These countries rely heavily on manufacturing, and particularly on exporting goods to Western Europe. As a result, they have suffered most in the region from the effects of the European sovereign debt crisis.
Polish executives are particularly shaken by the crisis in Europe. The country’s sentiment index is now at the same level as in the first edition of the Index in September 2009. Of all the executives surveyed, those in Poland were the most upbeat in 2010 and much of 2011.
Now, only 10% of Polish executives expect an increase in the employment levels of their firms, compared to 36% in June’s survey. There has also been a marked drop in optimism in Poland about expected revenue sales over the next year. Just over three fifths (62%) of Polish executives now expect increased revenue – a significant drop from the 85% expressing this outlook in June.
In the Czech Republic, sentiment has grown more negative on every question in the survey. Over one quarter (27%) of executives are now expecting reduced revenues, compared to 16% in June. Outlook about employment levels is split evenly at 27% each, between those who expect their firms to increase levels and those who expect a decrease over the next 12 months.
Across all six countries surveyed, Slovakia reports the most significant negative shift in sentiment about the prospects for their country’s economy. In June, 84% of Slovak executives were optimistic about the economic outlook. Now, just 12% expect a positive change in the country’s economy – a drop of 72%. Likewise, 52% of executives now expect a decline in the economy, compared to no executives expressing this view in the previous edition. There is a small increase, however, in the proportion of executives who believe credit is now easily available – up to 88% in this survey, compared to 81% in June 2011.
Cautious but stable outlook in the South
In contrast to the pronounced decline in sentiment in the North of the region, the survey finds that whilst there is a deteriorating outlook in the Southern countries, it is less significant than in the North.
Croatian executives are now more cautious about the present availability of credit for their firms with 64% feeling it is easily available while 83% felt this was the case in the previous edition. There is now an increase in the proportion of executives who feel the terms for the payment of dues are unreasonable: 70% now believe this to be the case, up from 53% in the previous two editions of the survey.
However, despite these drops in sentiment, Croatian executives are more optimistic than those in other countries regarding the financial prospects for companies, the likelihood of launching new products and services, and total employment levels at firms over the next 12 months.
Hungary sees the greatest change in sentiment regarding revenues from sales over the next 12 months. In June 2011, 63% expected increased sales. This has now dropped by over half to just 29%. The majority of executives (57%) expect sales revenues to stay unchanged.
As with their counterparts in the south of the region, Hungarian executives were positive about employment levels in their companies over the next 12 months, through the majority (60%) do expect levels to remain the same. Hungary was also the only other country save for Slovakia of the six surveyed that had a stable outlook on capital expenditure over the next 12 months.
In Romania, executives’ outlook about their country’s general economic prospects over the next six months was generally unchanged from the previous survey. This is the most neutral response of all the executives surveyed in the region. Romanian executives were, however, more negative about the financial prospects of their companies. This continues a trend from previous surveys, which has seen positive outlooks in Romania decline 63% in 3Q 10 to 48% in 2Q 11 and now 31% in the latest survey. Countering this deterioration in sentiment, however, Romanian executives did report the most positive change in outlook in the region regarding revenues from sales and acquisition plans over the next 12 months.
It is clear that the deepening sovereign debt crisis in Europe and also the overarching uncertainty in the global markets are causing considerable changes in sentiment in the North of our region. Their much more negative outlook is now more in tune with the consistent caution exercised by their counterparts in the South of the region.
Regardless of the reasons, this muted outlook has resulted in a worrying drop in overall sentiment for the region for the first time since the index was first published in 4Q 09.
Special Economic Zones
As well as the regional and individual country findings, this survey also features a series of questions on Special Economic Zones to gauge how important the promise of public aid for investment in certain territories is to our region’s executives.
• Virtually all respondents (99%) did not see public aid as a decisive factor when they made an investment in the past.
• Only 8% of executives felt that public aid was quite important for a previous investment.
• Two-thirds (67%) of respondents indicated that public aid had not been taken into account at all.
• Manufacturing is the industry most likely to have considered public aid for a previous investment, with 37% of executives reporting that it was at least one of many factors. Only 22% of Retail/Trade executives and 15% of Energy & Resources executives shared this view.
• More than one-third of respondents (38%) indicated that public aid would be at least one of many factors considered when deciding on a new investment location in the future.
• In the Czech Republic and Poland, the majority of executives (67% and 62%, respectively) consider the availability of public aid to be at least one of many factors they will consider when deciding on an investment location in the future. Only 27% of executives in Croatia, Slovakia and Romania expressed this view.
• Manufacturing will be the industry most likely to consider public aid for a future investment; 60% of executives replied that it was at least one of many factors they would consider.
Background to the index
• The index is a research-based analysis of the opinions and predictions of executives from the largest companies in Croatia, Czech Republic, Hungary Poland, Romania and Slovakia.
• Deloitte published the findings of the first Business Sentiment Index in September 2009.
• The sample size encompassed almost 200 executives from the largest companies in the region.
For more details please visit: www.deloitte.com/bsi
###
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/ro/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 182 000 professionals are committed to becoming the standard of excellence.
© 2011 Deloitte Romania
