Pessimistic retail sector, with expansion intentions

By: Barok Eszter Date: 2024. 11. 03. 20:19

Tibor Bodor, the head of K&H Bank’s corporate division gave a presentation at this year’s Business Days conference, titled “When and what may trigger growth in the FMCG sector?”

A cikk a Trade magazin 2024/11. lapszámában olvasható.

Tibor Bodor
head of corporate division
K&H Bank

K&H’s corporate growth index is a quarterly survey that studies the opinions of the managers of large Hungarian companies with sales revenue above HUF 2bn. The macroeconomic sub-index of the K&H corporate growth index focuses on market and economic policy factors, including government interventions, exchange rate movements and their impact on companies. Inflation hit the retail sector hard, with a sharp rise in food prices over 50%, causing serious difficulties for 62% of firms.

Drop in positive expectations, but waiting with layoffs

In the survey they asked companies how they expect sales revenues and pre-tax profits to develop over the next 12 months. The results aren’t very encouraging, as there has been a drop in positive expectations. In both domestic and foreign sales, the share of companies expecting a decline in revenues has increased, while fewer firms calculate with revenues and profitability to increase. For instance the proportion of businesses active in foreign markets expecting growth reduced from 26% to 21%. According to data from the second quarter, there are no signs of layoffs in the retail sector for the time being. 80% of the companies surveyed aren’t planning to increase or reduce their workforce, while 10% are planning to hire new staff and 9% indicated that they are planning to make workers redundant. There are currently 4.765 million active workers in Hungary, from which approximately 100,000 are registered foreign workers. Firms are often waiting with firing employees, being afraid that once they expand, it will be difficult and expensive to find and recruit new staff. The unemployment rate currently stands at 4.2%.

Investment: there is willingness to expand

In the retail sector there is a growing inclination to invest, with 44% of firms planning investments, which is only a little below the average for the corporate sector as a whole at 48%. This indicates there is confidence and a willingness to expand in the market, but decisions are often delayed by too much waiting and hoping for government intervention. However, the retail sector is more pessimistic than the corporate average about the economic outlook, both at one-year and three-year horizons. 56% of respondents believe that conditions will worsen, while only a quarter expect an improvement in the next year; the picture is slightly more positive over a three-year horizon.

Banks play a big role

Generating growth is a shared responsibility in which banks have a particularly important role to play. Tibor Bodor stressed that banks support the corporate and retail sector not only with financing, but also with advice and digital solutions. K&H is a key player in the financing of state-supported schemes such as the Széchenyi Card loan programme, with the total volume of loan agreements signed in the first half of 2024 reaching HUF 120bn. With ESG expectations in mind, K&H developed the K&H Agricultural CO2 Calculator for the sector, which has won several awards. When asked which three factors will have the biggest impact on the profitability of companies in the next twelve months, inflation proved to be the No.1 factor. Inflation is projected to be around 4.8% (with base effect) by the end of 2024, with macro analysts expecting a 3.9-4% inflation rate for 2025. //