Business sentiment: From plans of expansion to depleting possibilities for wage increase
While business sentiment in Lithuania regarding the country’s economic outlook continues to be favourable, labour market trends are suppressing positive expectations, shows the latest survey conducted by the Bank of Lithuania.
‘Business sentiment is ambivalent: on the one side, we see optimism regarding the country’s economic growth and plans of expansion, on the other – concerns over the possibilities to pay rising wages. Businesses that employed people from abroad or intend to do so in response to the labour market situation have been increasing in number,’ says Petras Dubinskas, Senior Economist of the Macroprudential Analysis Division.
While nearly 40 per cent of the respondents are expecting further wage growth, the survey shows that labour market pressures are not subsiding: nearly half of the surveyed reported they would not have sufficient resources for paying higher wages in the near future. This issue was mostly emphasised by small enterprises; the number of companies that employed foreigners (mainly – within the industrial and construction sectors) increased from 5 per cent to 13 per cent.
Despite labour market challenges, 38 per cent of the surveyed, mainly large and industrial enterprises intend business expansion in the upcoming half-year. Slightly more than half of enterprises (their number increased by almost 15 p.p. over the half-year) reported they intend to borrow a substantial share of funds necessary for expansion.
Official statistics show that lending for businesses continues to increase. For example, according to the data of October 2017, annual growth in the portfolio of loans to businesses was 7 per cent. Nevertheless, the survey results show that getting a loan continues to be quite a challenge for many enterprises. This was reported by over 40 per cent of the respondents, mostly – industrial, construction and small enterprises. They also emphasised a lack of competition among banks. Slightly more than a third of enterprises, especially larger ones, indicated increased lending rates. However, just about a fifth of the surveyed felt a need for alternative financing (not from banks).
Major challenges for Lithuanian businesses remained almost unchanged over the half-year: more than half of small enterprises and those in the service industry reported tax load and growing competition as those major challenges. Meanwhile, merchants named a shortage of clients as a major issue. The survey also revealed business concerns over rising production costs and a deteriorating demographic situation.
The Bank of Lithuania conducts a survey of non-financial undertakings on a biannual basis. Its aim is to assess the financial situation of businesses and business trends, borrowing requirement and lending possibilities, as well as other aspects related to the development and sustainability of the corporate sector.