As we approach the end of the year and the discussions about the budget for 2020 are emerging, the accusations of unprofessional public money management, deficits over expectations, growth below estimations, and the lack of sustainability of certain measures take shape in the public space.
The national currency collapses under the impact of reporting a very likely deficit of 4%. The election campaign focuses the attention of the electorate on what it needs to know and not on what is important to know.
The Politics spoils the Economy
In the election years especially, the economy becomes a battleground for the combatants. The recipe is the following: carefully collect economic indicators and mix with promises or accusations “as you like”, it is homogenized on screens and social media with great zeal, bake the mix for 6 weeks, serve ideologically hot and pick the tip up quickly measured in the exit pool percentages.
The practice of fast-food economic speech has become the norm for the campaign. We have no time for serious debate. In fact, we have no time for debate at all. If we were to discuss that Romania ranks 123 in the world in terms of financial education, who would understand?
A Black Friday throughout the year
As more and more companies in Romania reduce their investments from quarter to quarter, consumers are enjoying Black Friday. For the past two years, the companies have understood that they operate in an increasingly unsustainable market, a fact confirmed by the results of the Valoria study, Business Outlook in Romania.
While companies have reported revenue and profit growth, investments are at a lower level. Even if none of the companies has the crystal globe to know that a crisis begins “Tuesday next week”, risk management mechanisms have been activated in the face of threats from the political and legislative environment.
Asked to choose between several percentages of growth from the prolongation of the economic growth and the prospect of a considerable recession due to a late decision, the Romanian companies have chosen an operational average to address them both. The profit margins decreased and more careful liquidity and debt management were adopted. In other words, they have become more cautious about the very likely prospect of a trend reversal.
The peak of growth by consumption
Companies have understood that the rise in consumption is close to its peaks and that it is approaching a downward trend. The international situation does not look too rosy: Germany is technically in recession, more and more national banks are increasing their gold reserves to protect their economies, the US-China trade war is in full swing. The geopolitical landscape is complicated.
Any external economic shock leads to the worsened of the economic situation of the population in Romania. We know from the experience of the crisis of 2008 that unemployment increases, wages remain are frozen or decrease, the real purchasing power decreases as a side effect of rising inflation, refinancing of loans is also a very common reality.
So, companies have come to see beyond the risks of their industry or business model and be aware of the systemic risks caused by non-economic factors that may influence consumer perception.
The business sentiment turns cautious
Alteration of business sentiment did not start yesterday; the seeds of mistrust were planted first through legislative actions that led to social movements. Only the set of economic decisions made from 2018 have affected consumer confidence in Romania. The clear slowdown in 2019 of the heavy industry growth, the increase of prices, the increase of the external deficit, the doubling of the number of insolvencies comparing to the countries of the region, the low productivity, the low collection and the increase of the cost of labor announces the end of the party.
To the detriment of investments in infrastructure, which give long-term results, was taken the decision to raise salaries for an immediate electoral benefit. Increasing wages by 13% and productivity by only 4% shows the lack of sustainability of the chosen growth model. This measure has put pressure on the private environment to support wage growth. In the absence of adequate infrastructure to increase productivity, the private environment is unable to support wage growth.
In this context, Valoria’s survey highlights that the first challenge that the business environment is experiencing for the current year is the increase in labor costs. The executive directors of the responding companies say that the three main measures that would lead to the improvement of the business environment in Romania are: the reduction of the taxation of work (84%), the control and limitation of the tax evasion (72%) and the development of the infrastructure (61%).
At the level of “votumers” (voters and consumers alike), Black Friday is full of triumphalism and campaign mobilization speeches. The prolongation of the feeling of well-being with increased salaries and pensions continues. A carol of well-being is heard in whispering, the happy messages for the new year have the largest online search, the click runs after discounts and in the house smells of cinnamon and fir tree. But how long can we continue with the electoral campaign economy?