No. 3/17 July 217 NBP Quick Monitoring Survey Economic climate in the enterprise sector Summary Economic Analysis Department
The condition of the enterprise sector continued to be strong and stable in 217 Q2. At the same time, enterprises are presenting a significantly more optimistic - in comparison with the previous years assessment of the situation in the country. Expectations of a further slight improvement of the economic climate in 217 Q3 prevail. Figure 1 Assessment of the economic situation 6 4 4 indicator indicator sa mean value Figure 2 Quarterly forecasts of the economic situation 16 14 12 6 4 2-2 -4 indicator indicator sa mean value Sales conditions in 217 Q2 continued to be assessed as very good. Enterprises recorded both an increase in capacity utilisation and a diminishing demand barrier. The improvement was noted by most of the surveyed industries and classes, both exporting ones and those exclusively focused on domestic sales. Levels of revenue from foreign sales continued to be supported by the robust business climate in the EU countries being largest recipients of Polish exports. The nominal value of domestic sales, in turn, is expanding on the back of rising producer prices, including those of commodities. Moreover, expectations about demand in 217 Q3 continue to run high, suggesting a further rise in sales. Figure 3 Real growth of sales revenue Figure 4 Demand barrier and capacity utilisation rate Source: Financial statements, GUS data, NBP material
Figure Forecast indicators: demand, orders and output Figure 6 Demand forecasts by export class Employment levels in the enterprise sector may be expected to rise further in 217 Q3. Plans to expand the employment level are currently as optimistic as in 2, i.e. a period of the fastest employment growth since the systemic transformation. This lead to the problem of filling vacancies, although the scale of the problem is significantly smaller than 9 years ago. Furthermore, these obstacles are less significant than the currently most severe of the barriers, i.e. instability of legal regulations and the tax law. Figure 7 Employment forecasts 2 - -2-3 27 2 29 2 211 GUS NBP NBP (s.a.) mean value Source: NBP Quick Monitoring and financial statements, GUS data, NBP material Figure Difficulties in finding employees and job vacancies 42 34 26 1 IV kw. IV kw. IV kw. III kw. I kw. 217 II kw. 217 26 27 2 216 job vacancies difficulties in finding employees Despite the mounting difficulties in filling vacancies, no pressure to raise wages has been observed. Currently, only 1% of the surveyed firms observe an upward wage pressure. This figure is somewhat lower than 6 months ago, and markedly lower than in 2. The weakening wage demands support stabilization of the rate of wage increases in 217 Q3, one-fifth of enterprises plan to increase wages. Pay demands may also not be rising due to migration flows and the additional income of households arising from the "Family +" programme. The latter reduces the "financial gap" experienced by persons in employment (this could be indicated by the NBP studies of threshold wages of unemployed persons).
Figure 9 Forecasts of wage increases 4 4 3 3 2 2 1 27 2 29 2 211 mean value (% of companies) share of the employees (s.a.) mean value (% of employees) share of enterprises (s.a.) Figure Upward wage pressure 64 6 6 2 4 44 4 total pressure increased pressure (right axis) 16 14 12 6 4 Despite rising revenue and profits, the profitability of a median company is falling. Rising producer prices, including those of commodities, coupled with increasing labour costs (amid a significantly slower productivity growth) are squeezing profit margins. Rising costs are affecting individual industries to a various extent, yet they are a common phenomenon. At the same time, efforts at improving profitability seem to fall short. Firms address these problems primarily by cutting costs, which may not prove very effective, given the rising costs of production factors and, in many cases, previous cost reductions. Another common solution is a reorganisation or improvement of the work process. Yet, few companies are planning measures requiring investment outlays, e.g. purchase of more efficient technologies or more modern machinery, raising company profitability. This is especially the case outside industry and in companies other than large corporations selling to foreign markets. Figure 11 Return on sales ratio 6,,, 4, 4, 3, 3, indicator indcator sa mean value Source: financial statements, GUS data, NBP material Figure 12 Contribution of main components of cost of sales to the increase of this cost 12,,, 6, 4, 2,, -2, the period of deflation (PPP decline) -4, raw materials wages services goods energy depreciation Source: financial statements, GUS data, NBP material Inflation expectations are sinking; the percentage of firms planning to raise prices of offered goods and services is falling. All the analysed measures of current price changes and price forecasts for the next quarter and year suggest slower price growth, including both commodity prices and producer prices, as well as the forecast CPI.
212 I 212 II 212 III 212 IV 213 I 213 II 213 III 213 IV 214 I 214 II 214 III 214 IV 21 I 21 II 21 III 21 IV 216 I 216 II 216 III 216 IV 217 I 217 II Figure 13 CPI forecasts in annual terms 9 7 6 4 3 2 price increase prices unchanged price decreases I don't know Figure 14 Expectations of higher prices of materials, commodities and own prices 4, 4, 3, 3, 2, 2, 1, 1,,, forecasts of own prices (s.a.) forecasts of prices of commodities and materials (s.a) range of price changes (right axis) 4 4 3 3 2 2 1 One of the factors hampering price growth is strong competition. In the opinion of enterprises, while competitors' actions are the most important incentive to introduce innovative solutions, or at least asset modernisation, they are simultaneously the key factor hampering growth. Some entrepreneurs do not participate in the competitive struggle, which may in turn be related to their weak economic standing, uncertainty or shortage of funds for investment. In contrast, enterprises do not quote the absence of ideas for future growth as an important reason why the firm might give up expansion. Thus, despite the good economic climate and the upbeat sales outlook, firms currently display much less interest in further growth than a year ago. Figure 1 Factors hampering corporate growth competition 26, weak demand 17,1 investment done before 16,4 small family firm 9,1 uncertainty,9 legislation 6,1 lack of financing 4,6 lack of plan 4, other factors 3, small internal fin. 2, low profits 1, 1 2 2 3 Source: NBP, AR data Figure 16 Factors determining the modernization of the enterprise competition old machinery other factors high costs low profits ecology Source: NBP, AR data 2 3 4 The beginning of the year saw an improvement and a slowdown in the decline of corporate sector investments. Investment activity growth was noted in quarter-on-quarter terms. The signs of recovery are particularly marked in the private and the SME sectors. The findings of the NBP Quick Monitoring Survey point to a gradual rise in corporate investment activity. Yet, this concerns the SME sector to a lesser extent, and is mainly observed in large and public sector enterprises. Investment demand is supported by favourable demand conditions and positive assessments of the ability to fund expansion activity. On the other hand a range of factors including the unfavourable legal and tax environment may hamper investment. Although investment lending is on a steady rise, this is an important source of investment financing for a limited part of the corporate sector only, and its concentration remains very high. Most firms finance their development primarily with their own funds. Also, despite robust growth, the scale of leasing remains insignificant compared to the value of investment projects launched.
Figure 17 Investment growth 1 13 3-2 -7-12 -17-22 corporate investment y/y (incremental data) corporate investment y/y (quarterly data) gross fixed capital formation y/y corporate investment q/q sa Source: financial results, GUS data, NBP material Figure 1 Planned change in outlays 1 - - -1 annual plans annual plans (major change balance) quarterly plans quarterly plans (major change balance) Planned change during the quarter in y-o-y terms and in the entire year y-o-y (balance f changes) The liquidity position of the non-financial corporate sector remains strong, although the first signs of weakening have already appeared. In particular, liquidity is falling in firms which used to have large cash holdings. There is also a gradual decline in firms' capacity to settle trade payables; the share of trade credit in total liabilities is rising. Also, the percentage of firms that are not paid for completed work remains high. It should be mentioned that for the most enterprises experiencing non-payment for delivered goods or services, the share of overdue payments is low. Figure 19 Corporate investment loans Figure2 Enterprises' financial liquidity 1, 7 17, 17, 16, 16, 1, 6 4 3 4 46 44 7 74 7 1, 14, investment loans as % of total loans investment loans of large enterprices as % of total loans (rhs) Source: NBP banking statistics 2 1 42 27 2 29 2 211 cash liquidyty ratio above.2 (s.a.) - lhs share of enterprises without liquidity problem, financial results, GUS data, NBP material 66 The condition of borrowers remains stable at very high levels. The ability to repay bank debt is assessed as very high, close to its maximum levels. Also the terms of credit extension (the availability and price of credit) are considered favourable. Despite this, firms' interest in increasing leverage remains invariably low. The growth in debt resulting from bank credit, however, is rising, which is due to a high concentration of credit in the corporate sector the large borrowing needs of the largest firms.
Figure 21 Index of demand for credit forecasts 3 3 6 2 4 2 2 1-2 -4 27 2 29 2 211 indicator of loan debt forecast (s.a.) - lhs bank loan to non-financial corporate sector change (q / q, banking data)- s.a. Source: Quick NBP Monitoring Survey, NBP Banking statistics Figure 22 Percentage of firms reporting liquidity shortages and payment backlogs as barriers 27 2 29 2 211 lack of liquidity as an obstacle for enterp. development (lhr) payment backlogs as an obstacle for development (lhr) 7 6 4 3 2 1
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