Number of companies expecting negative profits is growing. The appetite for investment has eroded in H2, Valoria survey shows

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Companies have made significant adjustments in H2 compared to the previously projected figures in terms of turnover, profit, employee numbers, salary levels and investments for this year, according to “Business evolution in 2017” survey report, on the Romanian business environment, released by Valoria.

The percentage of companies expecting negative profits is now 20 percent compared to only 6 percent at the beginning of the year, while the percentage of companies which do not make investments in 2017 reaches 26 percent in the second half of the year versus 10 percent in the first half.

” (…) Unfortunately, the comparative data indicate a change in the business sentiment, the appetite for investment being the one that eroded the most, indicating a preservation instinct already activated by tax and legislative developments in recent months”, says Constantin Magdalina, Emerging Trends and Emerging Technologies Expert, co-author of the research.

Compared to the first half of 2017, the company growth forecasts get even more conservative. In the last six months, survey shows a slight percentage increase of companies expecting a fall in turnover this year, from 13 percent to 17 percent. There are negative adjustments of 1-4 percentage points in the percentage of companies expecting their turnover to grow in 2017, offset by an additional 8 percentage points over the range of 5 percent -10

In construction and real estate, the number of companies that forecast a turnover increase in 2017 is 65 percent in the second half of the year versus 83 percent previously. For IT companies, only 65 percent expect increases now, compared with 89 percent at the beginning of the year, and for professional service firms, the percentage drops to 65 percent from 94 percent previously.

The profit forecasts for the second half of 2017 are pessimistic. Although 31 percent of companies (vs. 32 percent previously) expect their profit to grow by 1 percent -5 percent, 19 percent expect the company’s profit to be higher by 5 percent -10 percent and 10 percent forecast an increase from 20 percent to over 30 percent. The highest drop is seen on the 10 percent -20 percent range where the percentage drops from 21 percent to 12 percent. Also, in September 2017, 28 percent of companies (compared to 12 percent previously) have negative expectations about their profits in 2017.

At industry level, 20% of IT firms expect a profit growth of 10-20 percent, while 40 percent of industrial production firms expect their profit to grow by 1 percent -5 percent, just like 50 percent of tourism, 64 percent of transport and 83 percent of utilities and energy companies.

According to the survey results, 26 percent of companies (compared to 10 percent in the first part of the year) say they will not make investments in 2017. Moreover, companies wanting to increase investments this year fall from 79 percent in March to 68 percent in September 2017.

”We also notice that only 15 percent of companies want to increase their investments by 10 percent -30 percent versus 36 percent previously. Most companies in telecommunications (50 percent), construction and real estate (38 percent) and professional services (25 percent) say they do not make investments this year,” survey authors note.


Number of employees to stay the same, wages to grow

The percentage of companies that expect the number of employees to stay the same in 2017 increase from 17 percent in March to 24 percent in September 2017. At the same time, 28 percent of companies versus 39 percent previously say they expect staff numbers to increase by 1 percent -5 percent this year. Only 15 percent of companies (compared to 24 percent in March 2017) expect the number of employees to grow by 5 percent -10 percent.

Of all 12 industries included in the compared analysis, only in the telecommunications and professional services industries are most companies (50 percent and 31 percent respectively) who say they maintain the same number of employees in 2017 as in 2016.

If at the beginning of the year 93 percent of companies predicted wage increases, only 6 months later their percent dropped to 84 percent. The 9 percentage points of the difference is transferred to companies that say they will not raise wages in 2017. Another important adjustment is for companies that expected wages to grow between 5 percent and 10 percent. Their percentage drops to 31 percent in September from 41 percent in March 2017. Also, companies predicting wages rising by 10 percent -20 percent are down 5 percentage points in these six months.

The industries where most companies say that wages will increase by 10 percent -20 percent this year are: pharmaceuticals and healthcare (38 percent), construction and real estate (35 percent), research and development (33 percent) and agriculture (30 percent).

Political and legislative instability represent the most important challenges for companies this H2. Next is the general state of the economy and the problems with the labour force.  At the same time, the most important opportunities for companies are: consumption growth, export and opening of other markets.

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