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News from Members Declining trust in growth forecasts of Romanian companies for 2018

Declining trust in growth forecasts of Romanian companies for 2018

by Valoria Business Solutions November 22, 2018

Author: Constantin Măgdălina, Emerging Trends & Technologies Expert

For companies in Romania, 2018 started pessimistically, with shaky confidence in the evolution of the economy. Meanwhile, the evolution of business sentiment in the second semester seems to have deteriorated further. This indicates the results of the Business Outlook Barometer in Romania 2018, conducted by consulting company Valoria. The study asks simple but essential questions about the evolution of turnover, profits, investments, the number of employees or the evolution of wages as the decision-makers see in the companies in Romania. This research has the virtue of comparability between the two semesters and is conducted on a year-on-year basis.

Because the 623 large Romanian companies with a turnover of more than EUR 50 million for 2017 achieved 43% of the total turnover, 37% of the total gross profit, having 20% ​​of the total number of employees, we carried out a comparative analysis of the responses of this category of companies to the research conducted in the first semester and the second semester of 2018. The survey of the second half of 2018 is based on a questionnaire that received responses from 329 senior executives. 4% of respondents come from companies with a turnover of more than EUR 100 million, 5% of companies with a turnover of EUR 50-100 million, 11% with turnover between EUR 10-50 million, 31% with turnover between 1-10 million EUR and 49% under 1 million EUR turnover.

22% of large companies expect lower turnover than in the previous year

Compared to the first half of the year, in the second half only 14% of large companies say they will grow the turnover by 10%-20% from 25% in the first part of the year. The situation is similar in the 5%-10% range where the percentages drop from 29% to 14%. In the 1%-5% turnover growth brackets the percentages rise from 21% in the first semester to 33% in the second one. On the other hand, in the survey for the second half of the year, 22% of the large respondents said they expected the turnover to fall in 2018, which was not the case for the first half of the year when there were no such answers.

23% of large companies say they will get lower profits this year

If profit forecasts for large companies were more balanced in the first half, in the second half of the year we see a concentration of profit growth on the 5%-10% level. Thus, 40% of large companies, compared to 21% six months ago, expect profits to increase in the 5%-10% range. Also, 17% of large companies say they will have a profit increase of 1%-5%, versus 27% previously. As for large companies whose profit stagnates, this percentage increases from 7% in the first part of the year to 14% in the second half. There is also a percentage of 23% of respondents who are now forecasting negative profits for 2018, compared with only 8% in the first part of the year.

41% of large companies have reduced the level of the investments planned

Compared to the first semester, we can see a concentration of investments on smaller growth ranges, which indicates the caution of large companies regarding the investment plan. Thus, if 41% of companies announced intentions to increase their investment by more than 20% in the first half of the year, we no longer have such responses in the second half of the year. On the contrary, the percentage of large companies that say they have increased by 1%-5% this year went from 35% to 55% and those who say they have increased investment by 5%-10% in 2018 went from 16% to 31%.

The number of employees and wages have moderate or stagnant growth

Unlike the first semester, when 16% of large companies estimate increases in the number of employees on the 10%-20% level, now only 7% say this. Thus, in the second half of the year, the forecasts regarding the number of employees indicates a slight negative trend, as the number of large companies that say they will reduce the number of employees by 1%-5%, goes from 15% to 27%. Compared to the first semester, in general, the large companies estimate a moderation in wage growth on all levels. Only 31% of large firms say they will increase salaries by 5%-10% this year, compared with 41% of respondents six months ahead.

In conclusion

The fuel needed to run any business, trust in the future of business development is at low rates in large companies in Romania. If we do not fill the tank through wise and timely economic measures, we run out and come to a halt. The results of this study spot the red light flickering on board warning the very low level of confidence for decision-makers. The growth at microeconomic level is achievable on a basis of institutional stability and predictability at macroeconomic level. The chance to recover the economic competitiveness gap with the EU average will be made possible through responsible and competent leadership.

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About Constantin Măgdălina

Constantin Măgdălina has 8 years of working experience, while he performed in multinationals both in Romania and abroad. Constantin has a Master’s Degree in Marketing and Business Communication at the Academy of Economic Studies Bucharest. He is certified Lean Six Sigma and ITIL which provide him a good understanding of processes and transformations within organizations. The Chartered Institute of Marketing certification furthered on complemented his expertise and knowledge in business. In those over 4 years working activity in a Big4 company, he initiated and conducted studies which analyzed different aspects related to the business environment in Romania such as the economic growth predictions of companies in 2013-2016, knowledge management, the buying experience in the age of digital consumers, social media 2013-2015, the utilization of mobile devices in Romania. He is the author of numerous articles on topics related to innovation, the efficiency of business processes, social media, the consumers’ buying experience in the age of digital, trends and emergent technologies. He is invited as a speaker at numerous events and business conferences.

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