Deloitte Business Sentiment IndexKey findings
6th edition / October 2011
The report reflects the latest views of some of the top executives across 200 of the largest companies from six countries in Central Europe: Poland, Hungary, Croatia, the Czech Republic, Romania and Slovakia.
Their responses include opinions on the current and future business environment, ranging from employment prospects and payment trends to new product development and capital expenditure.
Key findings at a glance
Main composite index
The sixth edition of the Index sees a fall in overall sentiment for the first time since the survey was first published in September 2009. The main composite index is now at 110 – down nine points since the last edition in June 2011. This decline represents a reversal of the trend of five consecutive increases in sentiment in the region.
Executives in Central Europe have lost confidence in any sustained recovery in the region due to the European sovereign debt crisis and inertia in the EU. This lack of confidence is borne out by the results of this survey. Executives in every country save for Romania expressed very negative sentiment about their country’s economic prospects over the next six months.
Since the beginning of the global recession, Central Europe has actually been split into two in terms of outlook. In the north (Czech Republic, Poland and Slovakia), economies rely heavily on manufacturing and particularly on exporting goods to Western Europe. These countries have therefore been the most affected by the repercussions of the European sovereign debt crisis. The findings for the south of the region (Hungary, Romania and Croatia) reveal that the European debt crisis has made much less of an impact.
It is clear that the deepening sovereign debt crisis in Europe and also the overarching uncertainty in the global markets are causing considerable changes in sentiment in the north of our region. Their much more negative outlook is now more in tune with the consistent caution exercised by their counterparts in the south of the region.
Regardless of the reasons, this muted outlook has resulted in a worrying drop in overall sentiment for the region for the first time since we first published the survey in 4Q 09.
Sentiment sinks in the north
This sixth survey finds that the positive outlook of executives in northern economies in our region has been seriously dented. These countries rely heavily on manufacturing, and particularly on exporting goods to Western Europe. As a result, they have suffered most in our region from the effects of the European sovereign debt crisis.
Polish executives are particularly shaken by the crisis in Europe. The country’s sentiment index is now at the same level as in the first edition of the Index in September 2009. Of all the executives surveyed, those in Poland were the most upbeat in 2010 and much of 2011. Now, only 10% of Polish executives expect an increase in the employment levels of their firms, compared to 36% in June’s survey.
In the Czech Republic, sentiment has grown more negative on every question in the survey. Over one quarter (27%) of executives are now expecting reduced revenues, compared to 16% in June. Outlook about employment levels is split evenly at 27% each, between those who expect their firms to increase levels and those who expect a decrease over the next 12 months.
Across all six countries surveyed, Slovakia reports the most significant negative shift in sentiment about the prospects for their country’s economy. In June, 84% of Slovak executives were optimistic about the economic outlook. Now, just 12% expect a positive change in the country’s economy – a drop of 72%. Likewise, 52% of executives now expect a decline in the economy, compared to no executives expressing this view in the previous edition.
Cautious but stable outlook in the south
In contrast to the pronounced decline in sentiment in the north of the region, the survey finds that whilst there is a deteriorating outlook in the southern countries, it is less significant than in the north.
Despite drops in sentiment on the questions of credit availability and terms of payment, Croatian executives are more optimistic than those in other countries regarding the financial prospects for companies, the likelihood of launching new products and services, and total employment levels at firms over the next 12 months.
Hungary sees the greatest change in sentiment regarding revenues from sales over the next 12 months. In June 2011, 63% expected increased sales. This has now dropped by over half to just 29%. The majority of executives (57%) expect sales revenues to stay unchanged.
As with their counterparts in the south of the region, Hungarian executives were positive about employment levels in their companies over the next 12 months, through the majority (60%) do expect levels to remain the same. Hungary was also the only other country save for Slovakia of the six surveyed that had a stable outlook on capital expenditure over the next 12 months.
In Romania, executives’ outlook about their country’s general economic prospects over the next six months was generally unchanged from the previous survey. This is the most neutral response of all the executives surveyed in the region. Romanian executives were, however, more negative about the financial prospects of their companies.
Special Economic Zones
The survey also finds that public aid in the form of Special Economic Zones is gaining importance in the region as more executives report that public aid will be at least one of many factors to be considered for a future investment in a given location.
- Virtually all respondents (99%) did not see public aid as a decisive factor when they made an investment in the past.
- Only 8% of executives felt that public aid was quite important for a previous investment.
- Two-thirds (67%) of respondents indicated that public aid had not been taken into account at all.
- Manufacturing is the industry most likely to have considered public aid for a previous investment, with 37% of executives reporting that it was at least one of many factors. Only 22% of Retail/Trade executives and 15% of Energy & Resources executives shared this view.
- More than one-third of respondents (38%) indicated that public aid would be at least one of many factors considered when deciding on a new investment location in the future.
- In the Czech Republic and Poland, the majority of executives (67% and 62%, respectively) consider the availability of public aid to be at least one of many factors they will consider when deciding on an investment location in the future.
- Only 27% of executives in Croatia, Slovakia and Romania expressed this view.
- Manufacturing will be the industry most likely to consider public aid for a future investment; 60% of executives relied that it was at least one of many factors they would consider.
|Download the 6th edition (October 2011) of the Deloitte Business Sentiment Index report|