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Industrial Barometer: volatile demand and rising production costs, major industrial risks
Volatile demand and rising production costs, affecting income, liquidity and investment firms, pose major threats to the industry, according to the Barometer Industry of Romania, conducted by IRSOP & SNSPA Faculty of Management.
The barometer indicates that between April and August industrial growth has weakened continuously reaching almost zero. The activity revived in September, but in October the advance stopped. The main cause of the growth is unstable volatile demand and stagnation in October was due to a steep decline in new orders.
However, the engine of exports remained "in gear" and continued to grow compared with the previous month, mentions the barometer.
According to the source, the output stayed in October, at 57 points recorded in September. In the first 10 months of the year, the average manufacturing activity was 56.5 points compared to 56.1 in the same period last year. Stocks fell from 49 in September to 46 in October due to the weak growth.
The orders that were taken dropped from 49 September to 42 in October. The decrease of the orders that indicate an excess of capacity in relation to the demand. If they persist,the excess capacity may lead to lower prices.
New orders dropped sharply from 59 in September to 56 in October,the demand remained volatile. In the first 10 months of the year, the index has fluctuated between 45 and 63 points, around an average of 55 points multi-monthly.
The export orders rose from 54 in September to 57 in October, and the index is now above the average of the first nine months of the year.
Imports of raw materials have reacted extremely sensitively to changes in the new orders, and in October the index fell 59 points against 62 in September.
The number of employees remained an unstable factor due to strained labor market conditions, wage policies and volatile demand. In October, the index fell from 50 to 48 in the contraction. Moreover, in the last five months the average index was 47 points, signaling the tendency of the managers to adjust labor by decreasing numbers.
The production costs rose to 72 points against 70 in September, reaching the highest value in the last eight months. However, the index exceeded by almost 13% the historical average of 63 points in the last four years.
Prices charged by companies for their products remained stable. The October index was 60 points as in September.
The authors of the Barometer consider that the overall optimism index of the managers lost momentum. It climbed four points from 56 to 60 between August and September, but October has not increased by more than only one point, reaching 61. The index value was obtained by aggregating the different expectations of managers on demand, production and future earnings.
The trust of the managers about what to be more than six months from now on is mainly based on positive expectations about export and the increase of the portfolio of orders waiting to be executed.The confidence in export increased from 62 to 66, and confidence in excess of orders increased from 32 to 41.
Fears are fed mainly by anticipating rising production costs and raw material imports. The trend of anticipation for higher costs rose from 63 in September to 73 in October and expectations regarding the increase in imports of raw materials, probably more expensive, increased from 58 to 61.
The barometer is conducted by IRSOP & SNSPA Faculty of Management on a sample of 300 industrial companies, representative at the level of 15,200 industrial firms with more than 9 employees in Romania, which generates about 95% of the total turnover of industry.The data were collected through interviews with company managers between 15 and 19 November 2018.