Romania’s economy grew in 2017. The government increased wages and pensions. The public investments declined. The European Commission reviewed negatively country’s growth forecasts for 2018. But the Government has communicated to the population about unprecedented growth. Imports have increased as have the consumption of the population. The National Bank has limited the indebtedness level of the population. The ROBOR index has risen, along with the prices and interests. The LEU has depreciated to a volatile exchange rate, which has led to repeated interventions by the National Bank. Companies have a pessimistic business outlook due to the lacking labor force, low productivity, and rising costs. This is the sketch of the economic evolution in Romania for the last two years.
Beyond the carnival, interpretation, nuances, ideological affinities and social turmoils, the Romanian companies’ decision-makers have been asked what is their business outlook for 2018. Their opinion, expressed in the second part of the year, was summarized in the research Business outlook in Romania 2018 conducted by the consulting company Valoria. The indicators that general managers were asked about are the following: turnover, profits, investments, staff numbers, wages, and the main challenges and opportunities.
Prospects for business growth in 2018
In the second half of the year, 12% of the CEOs, compared to 8% previously, said they would have an increase in the company’s turnover of more than 30%. It also increases from 7% to 16% the percentage of CEOs expecting a decrease in their company’s turnover this year. However, the majority of CEOs (26% -27%), both in the first part and in the second part of the year, expect higher turnover by 5%-10% in 2018.
Profits, though, grow marginally or decrease
Profit forecasts for the second half of 2018 are more pessimistic than those at the beginning of the year. Although 20% of CEOs (up from 13% previously) expect their profit to grow by 10%-20% this year, we see 14pp and 2pp decreases in the percentages of top executives who forecast a profit growth of 1%-5% and respectively of 5%-10% in 2018. It also increases from 9% to 19% the percentage of CEOs who say that the profits of the companies they run will be lower this year than last year.
Investments are reduced or postponed
According to research results, in the second half of 2018, 29% of CEOs say they will not increase investment, compared to 27% in the first half. Even if 48% of decision-makers want to increase their investment by 1%-10% versus 37% previously, only 11% of companies say they will increase investment by 10% to over 20% in the second half of 2018, compared to 19% at the beginning of the year and still less (7%) will increase investment over 30% in the second half compared to 11% in the first semester.
The number of employees is hard to raise
In the second half of 2018, 46% of CEOs say they do not expect any increase in the number of employees this year compared to 25% at the beginning of the year. At the same time, only 41% of companies compared to 66% previously say they expect their staff to grow this year. Moreover, 13% of companies now expect their number to drop, compared with 9% at the beginning of the year.
Wages are rising, but not the productivity
If at the beginning of 2018, 16% of the CEOs said they would not make wage increases, in the second half the percentage is 25%. Increases by 3pp the percentage of decision-makers who say they raise salaries by 1%-5% in 2018 compared to the previous semester but decreases the percentage of CEOs that expect salaries to grow by 5%-10% (-9pp) and those who wage increases of 10%-20% (-7pp) are expected. Given that productivity and competitiveness are major challenges for the domestic business environment, wage increases are added to the list of issues on the agenda of local top managers.
Top 5 challenges and opportunities
The most important challenges for companies, according to the general managers’ responses to the second half of 2018 research, are the following: labor shortage (61% vs 59%), productivity growth (48% vs 37%), rising costs (41% vs 21%), employee motivation (37% vs. 25%) and tax changes (21% vs. 62%).
The most important opportunities for companies mentioned by general managers for the second half of 2018 are: economic growth (60% vs 72%), growth in consumption (69%), growth in exports and the opening of other markets (45% vs 52% %), digitization and online opportunities (40% vs 41%) and access to European funds and SME funding (29% vs 36%).
The Government has imposed a drastic regulation of taxes and excise duties. Companies reacted with investment reduction and a loss of confidence in the future. The growth of Romania’s economy has hit the brake at from a 7% to a 4% growth rate. Everybody asks why this slow down. The rulers of the country are puzzled, do not consider themselves guilty of these results, and look for the source of the ”growth engine” failure. The EU is regarded as a bad policeman who prevents them to successfully run the country. But the people have started who ask if the ”driver” can drive (at all). ”Where do we all go?”, they wonder.