CEE managers see light at end of tunnel
Sustained upturn not expected until 2011
Central and Eastern Europe is showing initial signs of economic recovery. The stock markets have made up much of the lost ground, the national currencies are stable again, and forecasts for 2010 are slightly positive. Yet CEE managers are still adopting a wait-and-see stance. They don't expect sustainable economic growth to kick in until the end of 2010. The mood remains downbeat, particularly in the southeastern part of the region. Companies are still struggling with declining orders and delays in payment. A new problem to emerge in the last half year has been falling prices. These are some of the findings of the latest market study by Roland Berger Strategy Consultants. Conducted for the third time, it follows up surveys in October 2008 and March 2009. 330 managers from Austria as well as Croatia, Poland, Romania, Russia, the Czech Republic, Hungary and Ukraine were asked about how they see the impact of the economic crisis.
The survey shows that business now sees the proverbial light at the end of the tunnel. The number of pessimists has fallen from 63% in March to just 36%. In the same period, the number of managers describing the situation as uncertain rose from 30 to 47%. And there are three times as many optimists, up from five to 17%. A majority of the executives questioned are, however, still taking a wait-and-see approach. The free fall seems to have stopped, as yet there is no rapid recovery in sight. Two thirds of respondents take the view that the crisis will drag on for at least another twelve months. Only a minority expect to see a sustained recovery before the end of 2010. Interestingly, 50% of the Hungarian and 20% of the Croatian companies believe to be able to outperform the declining GDP and to recover until mid of 2010.
With the exception of Croatia, the mood in every country in the region is now more positive. The most optimistic managers are found in Hungary and Poland. But the reasons differ: While the predominantly positive mood in Poland can be correlated with the improved economic data, the Hungarian managers tend to be optimistic simply because they think things can't get any worse. The persistently negative mood in Croatia forms a stark contrast. 80% of Croatian managers expect to face another sharp decline in GDP. The level of dissatisfaction with their government's crisis management policies is particularly high. Managers throughout the region – with the exception of the Czech managers – are, however, also critical of their government's poor record in implementing urgently needed measures, especially tax changes and infrastructure programs.
Credit crunch beaten, but falling prices feared
Regardless of industry or country, companies in CEE again see thinning order books (62.6%) and a seriously worsening problem of unpaid invoices (54%) as the major direct consequences of the crisis. These problems are followed in third place by financing difficulties (38.7%), with falling price (38.4) coming a close fourth. In our last survey in March, 47.8% of managers complained about their financing problems. This figure has dropped significantly. On the other hand, fears of falling prices have grown from 35.3 to 38.4%. In Austria (67.5%) and Hungary (59.1%) deflation fears have already become the second biggest problem cited. In some countries, bankruptcies are frequently mentioned as a crisis impact – coming second in Russia and Ukraine and third in Romania. Two thirds of companies in the CIS countries surveyed and more than 80% of the Romanian companies suffer from trading partners going out of business. The general impact of the crisis in Romania is particularly severe. 87% of companies say they are struggling with declining orders, 82.6% with customers who won't pay. But in Russia and Ukraine the mood has significantly improved over the last six months. This is largely due to the fact that raw material prices are rising and orders are beginning to pick up.
Lack of focus on restructuring
Although there is no rapid recovery in sight in CEE, the doom and gloom has lifted in most industries. The mood in engineering and mining has clearly improved. Companies have run down their stocks, which must now be replenished. Demand is stronger and raw material prices are edging up significantly. As the previous survey also showed, the retail and service sectors have survived the crisis relatively unscathed. In fact, both sectors are anticipating some slight growth over the next few years. On the other hand, financial services along with the IT and telecom sectors are still hit hardest by the downturn.
Whereas it was all about crisis management in the first half of 2009, companies should now be looking harder at tackling the issues that are vital for the medium and long term. Almost all the companies surveyed have already responded at an operational level with cost savings programs, budget cuts and recruitment stops. Yet less than one in three companies is considering strategic actions like going for acquisitions as a crisis opportunity, revamping the capital structure, or divesting parts of the business. The score for this indicator has not improved since March. The upcoming 12 months will see a divide between CEE companies: Those having done their homework should quickly start looking forward and benefit from the crisis. Those still timid about adapting to the crisis will need significant restructuring, or will be restructured by someone else.
Central and Eastern Europe is showing initial signs of economic recovery. The stock markets have made up much of the lost ground, the national currencies are stable again, and forecasts for 2010 are slightly positive. Yet CEE managers are still adopting a wait-and-see stance. They don't expect sustainable economic growth to kick in until the end of 2010. The mood remains downbeat, particularly in the southeastern part of the region. Companies are still struggling with declining orders and delays in payment. A new problem to emerge in the last half year has been falling prices. These are some of the findings of the latest market study by Roland Berger Strategy Consultants. Conducted for the third time, it follows up surveys in October 2008 and March 2009. 330 managers from Austria as well as Croatia, Poland, Romania, Russia, the Czech Republic, Hungary and Ukraine were asked about how they see the impact of the economic crisis.
The survey shows that business now sees the proverbial light at the end of the tunnel. The number of pessimists has fallen from 63% in March to just 36%. In the same period, the number of managers describing the situation as uncertain rose from 30 to 47%. And there are three times as many optimists, up from five to 17%. A majority of the executives questioned are, however, still taking a wait-and-see approach. The free fall seems to have stopped, as yet there is no rapid recovery in sight. Two thirds of respondents take the view that the crisis will drag on for at least another twelve months. Only a minority expect to see a sustained recovery before the end of 2010. Interestingly, 50% of the Hungarian and 20% of the Croatian companies believe to be able to outperform the declining GDP and to recover until mid of 2010.
With the exception of Croatia, the mood in every country in the region is now more positive. The most optimistic managers are found in Hungary and Poland. But the reasons differ: While the predominantly positive mood in Poland can be correlated with the improved economic data, the Hungarian managers tend to be optimistic simply because they think things can't get any worse. The persistently negative mood in Croatia forms a stark contrast. 80% of Croatian managers expect to face another sharp decline in GDP. The level of dissatisfaction with their government's crisis management policies is particularly high. Managers throughout the region – with the exception of the Czech managers – are, however, also critical of their government's poor record in implementing urgently needed measures, especially tax changes and infrastructure programs.
Credit crunch beaten, but falling prices feared
Regardless of industry or country, companies in CEE again see thinning order books (62.6%) and a seriously worsening problem of unpaid invoices (54%) as the major direct consequences of the crisis. These problems are followed in third place by financing difficulties (38.7%), with falling price (38.4) coming a close fourth. In our last survey in March, 47.8% of managers complained about their financing problems. This figure has dropped significantly. On the other hand, fears of falling prices have grown from 35.3 to 38.4%. In Austria (67.5%) and Hungary (59.1%) deflation fears have already become the second biggest problem cited. In some countries, bankruptcies are frequently mentioned as a crisis impact – coming second in Russia and Ukraine and third in Romania. Two thirds of companies in the CIS countries surveyed and more than 80% of the Romanian companies suffer from trading partners going out of business. The general impact of the crisis in Romania is particularly severe. 87% of companies say they are struggling with declining orders, 82.6% with customers who won't pay. But in Russia and Ukraine the mood has significantly improved over the last six months. This is largely due to the fact that raw material prices are rising and orders are beginning to pick up.
Lack of focus on restructuring
Although there is no rapid recovery in sight in CEE, the doom and gloom has lifted in most industries. The mood in engineering and mining has clearly improved. Companies have run down their stocks, which must now be replenished. Demand is stronger and raw material prices are edging up significantly. As the previous survey also showed, the retail and service sectors have survived the crisis relatively unscathed. In fact, both sectors are anticipating some slight growth over the next few years. On the other hand, financial services along with the IT and telecom sectors are still hit hardest by the downturn.
Whereas it was all about crisis management in the first half of 2009, companies should now be looking harder at tackling the issues that are vital for the medium and long term. Almost all the companies surveyed have already responded at an operational level with cost savings programs, budget cuts and recruitment stops. Yet less than one in three companies is considering strategic actions like going for acquisitions as a crisis opportunity, revamping the capital structure, or divesting parts of the business. The score for this indicator has not improved since March. The upcoming 12 months will see a divide between CEE companies: Those having done their homework should quickly start looking forward and benefit from the crisis. Those still timid about adapting to the crisis will need significant restructuring, or will be restructured by someone else.
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