Most Entrepreneurs Expect a Decrease in Their Production

The industrial confidence index shows negative sentiment among Croatian entrepreneurs who mostly expect a decrease in production over the next three months.

Quarterly indicators suggest that the biggest obstacles to production remain a lack of demand and, for the first time since 2008, financial constraints.

This is stated in the publication of the Croatian Employers’ Association ‘HUP trend’ in the appendices on business expectations in Croatia based on monthly and quarterly indicators, which also warn that the utilization of company capacities has fallen to the lowest level since surveys began, standing at a rather low 66.9 percent.

Noting that the industrial confidence index, based on monthly indicators, shows negative sentiment among Croatian entrepreneurs, HUP states that in the first three months of 2013 there was a deterioration in five out of seven fundamental indicators.

Thus, entrepreneurs in the first three months of 2013 generally assessed that their production in the last three months developed weaker than usual.

The majority of entrepreneurs in the first three months rated the level of total orders as lower than usual, while on the other hand, according to the movement of the export orders index, it can be concluded that entrepreneurs in March assessed that the state of export order books was better than usual.

Responses to the question about the state of finished goods inventories indicate that the largest number of entrepreneurs rated their condition as usual. Therefore, exports are the only good news, while stagnation in the domestic market continues, HUP notes.

A larger number of entrepreneurs expect that production in their companies will decrease over the next three months, which is a significant deterioration compared to December 2012 and suggests that the positive announcement from the beginning of this year could be temporary, according to HUP.

Most entrepreneurs expect that their selling prices will increase in the upcoming period. Entrepreneurs’ expectations regarding employment trends remain negative, but compared to the end of 2012, this indicator is slightly more positive.

Based on responses about the state of total order books, inventory levels, and expectations for production in the next three months, the industrial confidence index is constructed.

Since entrepreneurs rated the state of order books as lower than usual, expect a decrease in production in the next three months, and rated the state of inventories as usual, there has been a decline in entrepreneurs’ confidence in the industrial sector over the last three months, HUP states.

In addition to monthly surveys, surveys in the industrial sector are also conducted quarterly, and one of the most interesting quarterly indicators is the one that shows the assessment of factors limiting the production of individual companies.

The highest values since the beginning of measurement are held by indicators related to insufficient demand and ‘other’ factors. In this context, a slight reason for optimism is provided by their decrease in the first quarter of 2013.

On the other hand, during the same period, there was a significant increase in the index indicating constraints related to financing conditions. For the first time since 2008, entrepreneurs placed financial constraints ahead of ‘some other factors’.

In the first quarter of 2013, entrepreneurs assessed that their capacities were more than sufficient given the state of orders and expected demand. The response regarding secured production based on current orders indicates that the number of months on average has dropped to 3.9, which is the lowest level since the end of 2010.

The greatest deterioration was recorded in the index showing the movement of orders in the last three months, while a slight reason for optimism is provided by the indicator of expectations regarding the movement of export orders. According to responses about capacity utilization, it can be concluded that it was in the first quarter of 2013 the lowest since cyclical tests have been conducted, standing at a rather low 66.9 percent.