CONFIDEX S2 2022: Managers’ confidence in the economy is falling due to current uncertainties

Aurel Constantin 23/11/2022 | 14:19

The confidence level of Romanian managers decreased in the second part of this year, near the level of the end of 2020, at 44.4, but remains above the level of the similar period of 2021, according to the results of the CONFIDEX S2 2022 study, published by Impetum Group.

 

In the second part of this year, the confidence of managers was influenced by inflation, the increase in energy and fuel prices, but also the costs of raw materials. Therefore, 1 in 3 companies declared themselves affected by the increase in energy prices, while 70% still declare to be affected by the war in Ukraine. At the same time, 43% of the respondents to the CONFIDEX study estimate, in the next three months, a decrease in GDP, private and public investments, as well as a devaluation of the national currency, in relation to the euro and especially the US dollar. On the other hand, we see an improvement in sentiment, which reached the level of 5.1, compared to 4.7 in the spring of this year: 31% of managers are optimistic about the evolution of the economy in the coming period, which reflects the increased level of resilience and adaptability of the business environment. At the opposite pole, only 27% look at this development with concern, and 42% look cautiously at the future of the economy in Romania.

The CONFIDEX results reveal a lot of new things regarding the perceptions about the macro-economic environment, Romanian managers expect a recession, an energy crisis and a devaluation of the Romanian leu against the dollar, and yet their mood has risen. Overall, they are more relaxed. The question we ask ourselves is whether this relaxation comes from a better level of preparation, at the level of the business environment, to face the challenges, an increase in the degree of resilience and from the confidence of the managers that they can overcome even the bigger challenges, or it comes from the fact that they hope that the situation will be good because the state will intervene to solve the problems and they adopt a reactive attitude. But we have seen that globally, the total indebtedness of states and private companies reaches a level of 250% of world GDP, and the question is, how sustainable is further indebtedness in the future?“, says Andrei Cionca, CEO & Co-founder Impetum Group.

The most likely investments of their own financial resources that managers would make in the next period are in their own company, namely 48% would contribute to capital expenditures, and 40% would contribute to working capital. The next investment preferences are real estate and government securities. The answer is almost like the destination of cash surplus that can be invested from companies (cash surplus). Real estate and bank deposits are next on the list of preferences.

We see that 3 out of 5 managers would like to have access to alternative sources of capital. However, they choose to invest their personal and their companies’ resources mainly in their own companies and few look to investment funds or private equity firms. It is a matter of financial literacy to understand the value of these alternative financings that can provide higher, and above-inflation returns on an ongoing and long-term basis with reasonable risk.” Andrei Cionca also said.

About 1 in 4 managers (24%) believe that the situation of the company they represent has improved in the last six months, and overall they believe that their company is in a better state than those in the sector in which they operate: 55% see that the situation of the field in which they operate has deteriorated, 77% that the situation at the level of our economy has deteriorated and 79% believe that the situation at the level of our economy has deteriorated.

Since the beginning of the study, we noticed that managers have a tendency to underestimate what is happening to their company or to underestimate what is happening to the companies in their field of activity, to our economy or to the European economy. And this makes us question whether there is real communication between companies and whether there is a real understanding of our economy.” added Andrei Cionca

The last two years have led managers to invest in digitization.

Thus, 21% of the managers installed photovoltaic panels, 12% resorted to refurbishments, and 9% reduced consumption. However, more than 50% of companies took no action. The most likely equity investments that managers would make in the next period are in their own company.

The effects of recent turbulence have also had an impact on recruitment plans of companies. Thus, 22% of organizations have not hired anyone in the last two years, while only 8% have increased their teams by more than 50 employees. The others have employed between 1 and 50 people in the last two years.

Regarding the last six months of activity, 27% of managers admit that it has been difficult for them to attract labor, almost a quarter have difficulties with working capital, and 22% talk about more difficult access to credit. On the other hand, 33% have improved their relationship with customers and 28% have a better relationship with employees.

Expectations for the future

Approximately 9 out of 10 managers expect Romania’s economy to face increased inflation in the future, and 84% believe in a prolongation of the energy crisis. Moreover, the increase in the unemployment rate should be anticipated in the coming period, while 82% of managers expect a new economic recession.

1 in 2 managers aim to increase sales

To overcome the challenges in the coming period, 56% of managers prioritize increasing their sales, keeping jobs, improving customer relations, digitizing, and automating the company. In addition, 39% consider cost reduction as an adaptation strategy.

Moreover, the National Recovery and Resilience Plan (PNRR) can be a real support for managers, being very popular among them. At the same time, 13% of the companies that participated in the study applied for a financing scheme.

About the CONFIDEX Study

Initiated shortly after the beginning of the pandemic, CONFIDEX measures the confidence of Romanian managers in the current economy and aims to create concrete benchmarks and support managers in making decisions adapted to reality.

In the seven stages of the research so far, more than 3,000 managers from Romania have responded. The responding companies total more than 150,000 employees.

The CONFIDEX S2 2022 study covers a sample of 542 companies from the top 6 categories of economic sectors contributing to GDP: agriculture; industry and electricity; constructions; trade; transport, distribution, storage; services. Only CEOs and C-level managers responded to the study, and of the companies targeted, 75% have over 1 million euros in turnover and 31% over 5 million euros in turnover.

Study data was collected between 24 of October and 7th of November 2022.

The CONFIDEX index is built from the aggregation of 29 items and measures on a scale from 0 to 100 points the confidence in the economy of Romanian managers and entrepreneurs.

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Aurel Constantin | 29/11/2022 | 10:17

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