Fiscal instability is the biggest challenge in 2019, according to businessmen interviewed by KeysFin Business Focus 2019. According to the data collected, the unpredictability of tax legislation will significantly influence the appetite of investors, both Romanians and foreigners, to open up new businesses.
The over 800 changes made in fiscal legislation last year, culminating in the controversial “greed tax” issued in December, significantly influenced investors’ perception of Romania’s economic development in 2019.
According to the 9th edition of the six-month barometer on economic outlook, 82 percent of businessmen surveyed by KeysFin have put the uncertainty about taxation first in the top of 2019 challenges.
In contrast to the 2018 barometer, KeysFin experts have noted the increase in uncertainty about tax prospects by more than 6 percent, a sign that the issues have increased in this segment.
If last year, second in terms of risks to the economy was inflation, in 2019 the decline in investment is the main concern, beyond taxation. 64 percent of respondents expect a fall in investment in the economy, amid the worsening macroeconomic outlook.
“2019 is set to be a standby year for many investors. Lack of predictability of administrative decisions, currency market developments, significant funding constraints, and a worsening of the labor market crisis will significantly influence investment appetite,” shows KeysFin Business data Focus 2019.
The fall in private investment in the economy, especially greenfield, with potential for horizontal development, will also be influenced by the possible narrowing and increase in lending, amid administrative measures announced by the authorities.
“57 percent of investors have indicated that credit lending is one of the main challenges in 2019. The ‘greed tax’ will force financial institutions to reconsider their businesses in Romania, and the consequences could be seen in an increase in lending and a reduction in lines of financing for the Romanian business, which will significantly influence the perception of foreign investors, and a downgrade of Romania by rating agencies is not excluded,” according to the analysis.
According to the barometer, depreciation of the RON (estimated by 43 percent of respondents), financial lock-up (36 percent), rising utility prices (27 percent), and labor market crises (23 percent) were also mentioned list the main risks to the economy.
Investors also mentioned the “noise” on the political scene and the possible worsening of the global economic situation.
What RON faces in 2019
Anticipated in the KeysFin Business Focus 2018 barometer, the inflationary push from the Romanian economy is projected to continue this year, influenced, among other things, by administrative decisions on surging energy suppliers and price developments worldwide.
Under these circumstances, asking why I believe that the euro will be traded in the first semester, most investors (55 percent) indicated the range of RON 4.68 – 4.7 for EUR, with a prospect of crossing this level in the second half of the year. 21 percent of investors surveyed by Keysfin see the euro above the RON 4.7 per EUR threshold.
“The way in which the National Bank will manage monetary policy in tandem with fiscal measures announced or envisaged by the Government will be extremely important to investors for their mood. In a fragile economy, poorly capitalized, with multiple imbalances, with an increasingly deficit for trade balance and increasing uncertainty about budget deficit financing, the RON in relation to the main currencies will be a significant barometer on the state of the economy,” analysts at KeysFin said.
An eventual tightening of monetary policy this year is anticipated.
“Even if the NBR retained key interest at the beginning of this year, it is not excluded that it will change its position over the next few months, depending on the situation in the economy. The disastrous prospects noted by the NBR in the analysis of the impact of the governmental ordinance on the profitability of banks could be a significant argument,” says the experts.
What business to do in 2019
According to estimates of businessmen, trade, manufacturing, transport, construction and agriculture will generate the highest turnover this year.
In addition, statistics show that among the more than 41,000 companies with a turnover of between EUR 300,000 and EUR 1 million in 2018, 37 percent had trade as the main industry, 13 percent manufacturing and almost 10 percent transport and storage.
From the point of view of profitability, businesses with the highest potential are announced in IT & C, healthcare (private clinics, medical practices, etc.) and entertainment and culture – shows, concerts, sports events. In 2018 these generated the highest investment returns, over 30 percent.
From the risk point of view, 59 percent of respondents estimate that trade will be at the forefront, 49 percent see a significant risk in construction, 47 percent in real estate and 25 percent in manufacturing. On the opposite side, there will be health and education businesses.
“In a weakly capitalized economy, trade will continue to generate the most insolvencies and bankruptcies, amid the deepening of the financial bottleneck. The construction sector is also announcing a sensitive area, the prospects for a slowdown in demand in the real estate sector, limiting access to credit will generate a negative downside. All the economy will increase the risks, so the use of business information services and credit risk management, those that tell you specifically who you are doing business with and what business risks, must be at the forefront,” experts said.
The KeysFin Barometer on the Romanian economy was conducted between December 2018 and January 2019 on a representative sample of 150 companies from various fields of activity, from trade, to financial services, agriculture, energy, clothing, IT, etc.