Romania’s economic prospects in 2018 are nebulous. Company decision makers are reserved and macroeconomic data confirm the investment rebound for the companies in Romania. Most top executives say that the minimum wage rise affects profitability, and the confidence that 2018 will be more favorable for business than 2017 is at extremely low rates. This seems to be the perception of the 475 decision makers in Romanian companies who answered to the questionnaire of the Business Evolution in 2018 survey conducted by consultancy firm Valoria.
Taking into account the indicators such as turnover, profit, investment or growth in salaries and the number of employees, we present the results highlighted by this study for the following industries: agriculture and food, construction and real estate, wholesale and retail trade, information technology (IT), industrial production, and professional services.
The IT industry expects the largest decline in turnover in 2018
Just 24% of the construction companies, down from 33% in the previous year expect a turnover growth level of +5% -+10% in 2018 and 33% down from 22% expect a sales growth by+10% – +20% compared to 2017. In 2018, only 16% of the agricultural companies say they will increase their turnover by +1% – +5% compared to 40% last year and only 22% say they will increase their turnover by +5% – +10%, compared to 40% in 2017. In industrial production, 17% of companies say they expect increases by +1% – +5% and 20% by+10% – +20%. The IT industry has the largest decline of the six industries, with 24% of companies expecting negative turnovers this year. In trade, 39% of companies compared to 43% previously estimate increases by +10% – +30% of sales, and in the professional services industry, only 26% of companies compared to 54% in 2017 see increases by +10% – +30% this year.
The largest earnings increases are estimated by agriculture companies in 2018
Even if growing, the profit of construction companies undergoes a major correction with 38% companies in 2018 vs 50% in 2017 earmarking a profit growth by+5% – +10% and 3% vs. 33% one of+10% – +20%. 19% companies in agriculture compared with 60% in 2017 move from +1% – +5% profit growth rate on the upper levels of +20% – +30%. The profit of industrial production companies remains similar to last year’s expectations, but with a slight downward trend. The IT industry is not homogeneous in terms of profit growth in 2018, with only 66% of companies, compared to 89% in the previous year, predicting profits growth this year. At the same time, 10% fewer companies say they will have profit increases between +1%- +5%, but 22% in 2018 compared to 8% in the previous year, are expecting increases of +10% – +20%. In the service industry, only 10% of companies versus 30% previously say they will have a higher profit by +20% – +30% in 2018.
Retail companies keep investment levels at the same level as last year
The investment appetite of construction companies declines significantly; only 5% compared to 49% a year earlier say they will have higher investments by +20% – +30%. With 19% of companies compared to 2% in the previous year, to increase investments by +20% – +30%, agriculture companies seem more confident in 2018. Industrial production companies shift from +5% -+20% (52% in 2017 vs. 39% in 2018), with 20% more companies predicting increases by +20% – +30% in 2018. IT companies’ investments appear to be in the middle growth bracket +1% – +10% (57% of companies) and drops from 56% to 1% of companies in the range +10% – +20%. Retail companies keep investments at about the same level as in 2017 (74% in 2018 vs. 77% in 2017 expect increases). Investment in business services drops from 52% in 2017 to 31% for the range of +5% – +20% in 2018.
The growth in employee numbers is moderate in companies across all industries
For most construction companies, the number of employees decreases at all levels, with the exception of the +10% – +20% level where 8% of the responding companies, compared to 0% in the previous year, expect the number of employees to increase. In agriculture, 32% of companies, compared with 12% in 2017, expect the number of employees to remain the same, but 41% compared to 80% estimate increases of +1% – +10%. In industrial production, with 17% more companies see an increase in the number of employees in the range of +5% – +30%. In the IT industry, only 52% of companies compared to 89% in 2017 say they will increase the number of employees. In retail, for 35% of companies, the number of employees will increase by +1% – +5% and 14% fewer companies see increases in the range of +10% – +20%. This year 12% of professional service companies say they will see a reduction in the number of employees compared to 0% in the previous year.
Wage growth is present in all industries as a result of raising the minimum wage in the economy
The increase in the gross minimum wage in the economy has the effect of raising salaries for 73% of construction companies, 84% of the agricultural companies, 88% of the industrial manufacturing companies, 90% of the IT industry companies, 87% of retail companies and 76% of service companies. The consequence of this measure for most companies in all six industries is the decline in profitability.
The year 2018 is announced as paradoxical: predicted economic growth and moral recession. Significant earnings estimated coupled with a lack of confidence in the future. For companies in Romania, 2018 will be worse than 2017. From this point of view, given the low confidence rating (4.4) that companies give in 2018, it seems that someone is responsible for this test failing. Guess who?