KeysFin Business Barometer: 2018, a year of uncertainty

The economy continues to grow, but the imbalances are sharpening. Romanian managers are moderately optimistic as concerns grow on the real economic evolution this year. The inflation, the depreciation of the local currency and the uncertainties related to the fiscal framework are the main risks highlighted by the businessmen as per the eighth edition of the bi-annual barometer on the economic outlook, a release posted on the website reads.

According to the KeysFin Business Barometer, over 150 businessmen active in various economic sectors from trade, financial services, agriculture, energy, textiles to IT&C, consider that the local economy will continue to grow in 2018, but the trend will decelerate when compared to 2017.

54% of managers surveyed by KeysFin have estimated a GDP growth between 4-4.5%, 23% expect an advance above 5%, while 7% consider that the GDP will increase by less than 4%.

16% of the businessmen surveyed by KeysFin avoided answering, stating that there are currently too many uncertainties about the economy, especially with regard to the second half of the year.

In contrast to last business barometer performed in June 2017, KeysFin’s experts note an increased uncertainty on the economic outlook for the economy and a decline in businessmen’s optimism.

Changes to Fiscal Code, main concern

“The potential changes to the Fiscal Code represent the main concern in the business environment. Significant changes in the last part of 2017 and the prospects for new ones this year are currently the biggest unknowns. In the context of an unstable fiscal framework, many businessmen have postponed their investment and business expanding plans. Moreover, the impact of fiscal uncertainty is exacerbated by a significant increase in financing costs”, said the KeysFin analysts.

The uncertainties concerning the fiscal policy are thus the biggest risk as being identified by more than 76% of respondents. The evolution of prices (65%), of the local currency (53%), the labour market crisis (51%) and the increase in lending costs (38%) were also mentioned by managers as considerable risks to the economy.

Investors have also noted the “noise” on the political scene and a possible deceleration of the global economy as potential risks.

Consumer spending – main economic driver

The positive economic momentum in the first half of the year will be mostly supported by consumer spending, with 72% of businessmen positioning retail and wholesale trade as the main economic drivers.

“The wage and pension increases will have a significant impact in this economic area, but it will not be as powerful as last year, given the price increases estimated by producers and traders due to the depreciation of the domestic currency,” according to KeysFin Business Barometer. In the context of rising consumer spending, a considerable share of businessmen (62%) also expects consumer related services to register a consistent advance. The list of scopes of activity that are to perform in 2018 includes also agriculture (34% of respondents), construction (31%), tourism (29%), transport (17%) and IT (12%).

Local currency

The inflationary pressures will be largely influenced by the evolution of the national currency. Asked about the price the euro will be trading against the leu in the first semester, most investors have indicated the range of 4.7-4.75 lei.

If in the last edition of the Business Barometer from June 2017, 69% of investors expected that the euro would trade above the 4.6 lei / euro threshold, a level subsequently confirmed by the market, now more than 75% see the euro trading above 4.7 lei, possibly starting with spring this year.

19% of investors surveyed by KeysFin see the euro around 4.65 lei and 6% refrained from answering stating that they consider that there are too many uncertainties in the economy to issue a forecast.

On the other hand, investors consider that expectations of rising inflationary pressures and increasing twin deficits could cause the NBR to continue tightening the monetary policy this year. The National Bank has already taken the first step by rising, for the first time in a decade, the key interest rate to 2%.

“Beyond the leu’s evolution, the tightening financing conditions due to increased interest rates could significantly influence the dynamics of the economy, an impact that is hard to accurately estimate in this moment. Many investors believe that leu’s depreciation and the rising interest rates will significantly lower investment appetite in 2018. We will have another year of uncertainty, ” said KeysFin analysts.

Foreign investments, at risk

Another question included in the KeysFin barometer, that the investors became accustomed to over time, was about the measures that they consider important for the economy to continue its positive momentum in 2018.

Most investors talked about the need for predictability, insisting on the importance of a stable fiscal framework.

Businessmen also pointed out the need for public infrastructure investment projects seen as paramount to increasing investment interest, especially greenfield.

Boosting the access to European funds, eliminating bureaucracy, and providing incentives to investors interested in developing horizontal impacting and job-creating businesses were also among the measures asked for by the managers.

“The rise in investor risk aversion to Romania due to the increased uncertainty about government policies must be at the forefront of the authorities’ attention and dealt with very carefully” said KeysFin analysts.

The KeysFin barometer on the Romanian economy was performed between 10th and 30th of December 2017, on a representative sample of 150 managers from companies active in different sectors of the economy, from trade, to financial services, agriculture, energy, textiles, IT, etc.


agricultureconsumer spendingenergyFinancial ServicesFiscal Codefiscal frameworkforeign investmentsGDP growthinflationinflationary pressuresKeysFin Business Barometerlabour market crisislending costslocal currencyNational Banktextilestrade
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