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Challenges in the Economy: High Inflation, Loan Rates, and Shrinking Sectors

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The situation in the economy is not easy, and the increase in loan interest rates, as well as the still relatively high inflation, are not friends for business development. This may also explain why the mood overview shows a tightening of the grooves of concern or, at the very least, a wrinkling of the nose. Looking at the company’s financial data at the end of last year, it could still be said that under the influence of inflation, the overall profit of the corporate sector has increased significantly, but the opposite must be said regarding this year. The reason, first of all, could be related to the fact that inflation is decreasing and this does not allow many people to try to sell something more expensive in the general price jump, even if the costs have not objectively increased. Secondly, although the inflation figure is decreasing, it is still very high and has contributed to the emptying of citizens’ wallets, the situation being further aggravated by the increasing loan payments. They are one of the reasons why volumes are shrinking in the two largest sectors of our country’s economy – manufacturing and trade, and if the situation continues to develop in a similar manner, we may have to count on a lower labor demand from the mentioned sectors. This does not immediately mean the dismissal of employees, at least certainly not among specialists, but the fact that certain optimization measures must be taken into account in the near future. Most likely, this will manifest itself in the fact that, for example, it will be more difficult to find a job in trade than it has been until now.

Of the four large sectors where business sentiment is measured by statisticians – manufacturing, construction, services and retail – the latter was the only one where the overall business sentiment in June was measured with a positive number. It is true that here too the rating had deteriorated compared to May. Last month, the confidence index in retail trade according to seasonally adjusted data was 4.7, and compared to May, it decreased by 2.8 percentage points, according to data from the Central Bureau of Statistics. Although the mood of entrepreneurs in all retail trade subsectors is positive for the fourth month in a row, in June the confidence indicators have slightly decreased: in non-food goods retail by 3.9, food – by 2, and fuel retail by 1.4 percentage points. Only in the case of car sales, business sentiment has improved by 2.7 percentage points compared to May. It is also interesting that 27% of the surveyed companies in the industry pointed to insufficient demand as a limiting factor, but at the same time, the same percentage admitted that there are no limiting factors for their activity.

Industrialists suffer more

The manufacturing industry, which has proven itself to be the driving force of our economy on several occasions, seems to suffer the most from the above-mentioned stagnant demand. Data for May and June are not yet available, but it is known that in April, compared to the corresponding month of last year, the output of the industry fell by 8.8%. Furthermore, rates of decline tended to increase, so the fact that business sentiment is the worst in manufacturing is no wonder. It is true that the June figure is slightly better than May, when it was called a record low in the estimation of statisticians. June sentiment was rated at 8.4, which was 1.2 percentage points better than in May.

Insufficient demand was cited as a limiting factor by 46.2% of entrepreneurs in the manufacturing industry in June. Lack of manpower and lack of materials or equipment were noted by 17.9% and 13.9% of respondents, respectively, while financial difficulties were mentioned by 12%. The influence of other factors was indicated by 8.7% of entrepreneurs (inflation and the impact of the war in Ukraine are mainly mentioned). At the same time, more than a quarter, or 26.4%, of entrepreneurs in the manufacturing industry did not experience any limiting factors in their economic activities in June. Thus, similar to trading, there are a number of companies that are weathering the current economic stagnation or even recession very well, which is positive news when looking at the potential for recovery once the economic woes are over.

If we talk about other spheres, there are currently several areas where the mood of businessmen would be considered relatively good in connection with seasonal factors – the hospitality industry, air transport, etc. At the same time, the deterioration of the situation can be observed in construction, which showed a very solid increase in the first quarter of the year after the decline of several previous quarters. At that time, the production volume of the industry increased by 17% compared to the corresponding quarter of last year. Construction activity in June was most limited by the lack of labor and insufficient demand (indicated by 31.3% and 28.9% of respondents, respectively). Financial difficulties and lack of materials or equipment were indicated by 17.4% and 5.7% of construction contractors as limiting factors, respectively. 5.4% of respondents indicated the limiting effect of weather conditions, and various other factors – 4.6% of respondents. Meanwhile, builders also have a large number of companies that continue to operate successfully. Namely, 31.1% of the surveyed businessmen do not feel any limiting factors for construction activity. Thus, in general, it can be said that the economic situation of our country is quite multifaceted, but with the slowed down demand, both here and in the export markets, the situation may continue to deteriorate.

2023-07-03 02:15:15
#Business #prospects #promising #future

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