Reduction in orders for businesses worrying

  • Lusa
  • 20 September 2022

Portuguese companies recording a decrease in the number of orders reported an average decline of 28%, according Portugal's Business Confederation (CIP).

The vice president of Portugal’s Business Confederation (CIP) Armindo Monteiro has said that the reduction in orders from companies is “worrying” and pointed out that “there is an effort” on the part of the business community to maintain price levels.

The vice-president of the Confederation of Portuguese Business (CIP) was speaking at the online press conference to present the results of the 21st survey carried out as part of the “Vital Signs” project, developed by the organisation in partnership with Lisbon ISCTE university’s Marketing FutureCast Lab.

“These responses are worrying,” said Armindo Monteiro, commenting on the results of the survey, which conclude that 29% of the companies surveyed recorded a decrease in backlog orders up to September 1 (compared to the same period in 2019), while 20% of companies maintained it and one in four (25%) increased orders.

Companies recording a decrease in the number of orders reported an average decrease of 28% and those with “an improvement in orders indicated an average increase of 29% in their value”, according to the study.

Armindo Monteiro highlighted four points, in which “the first is that clearly, contrary to previous months, there is actually a reduction in orders”.

And a reduction in orders “is naturally something worrying because it has to do with future sales. This point is extraordinary because until now there was some optimism, not only in the orders that were coming in, but also in the orders that entrepreneurs thought they would have”, now, in this questionnaire, “for the first time we note a moderate optimism in some, in others it is not optimism at all, it is actually an awareness that orders are decreasing”, he pointed out.

In other words, talking about the decrease in orders is talking about a decrease in sales. According to the study, in average terms, 28% of companies decreased sales and services provided by the end of August (compared to the same period in 2019, before the pandemic), 32% maintained sales and services provided and 40% increased them.

The second finding is that “60% of the companies” surveyed had “increases [in costs] above 15%”, which is “a lot” as it “immediately reduces margins”, he pointed out.

“The third observation is that, despite this huge increase in costs, 75% of entrepreneurs chose not to pass on this cost increase in their prices, meaning that not only are margins being crippled by this cost increase but entrepreneurs, within this effort not to contribute to the generalised increase in prices” have not passed on or have passed on moderately in the final price, he continued.

According to the study, “on average around 36% of companies saw their operating costs rise by between 16 and 35%” and only 16% saw their costs rise by less than 5%.

The study had a sample of 245 companies, of which 45% are from the industry and energy sector, other services represent 27% and commerce 10%.

“Only 7% of companies, on average, reported that they fully passed on the cost increase in their selling prices. On average, the majority (53%) said they passed on moderately, or less than half of the cost increase,” and, “on average, around 22% of companies did not increase prices,” the document said.

The fourth point made by Armindo Monteiro is that “there is indeed an effort to maintain price levels by business owners, even with a very sharp increase in costs.

In short, “inflation is clearly harming companies”, stressed the vice-president of the CIP.

“All this is already seriously worrying,” he said, noting that on satisfaction with the Recovery and Resilience Plan (RRP – the EU’s post pandemic bazooka recovery funds) to overcome difficulties, the questionnaire reveals that “89% consider that the RRP falls short or very short of needs.”

Now, “all that remains is to ask whether it is necessary to reach 100%, that is, with this level of dissatisfaction, with these difficulties that have been identified and when the main instrument of support falls short or very short, it is actually a little desperate,” he stressed.

“The support is necessary now”, he said, alerting that what was noted in the questionnaire “is that this is really the time to act and that in some cases it is already past the time to act”.

The survey was carried out between September 5t and 15, which ended on the day that the government measures to support companies were presented.

Armindo Monteiro also noted that “there is great pressure on salaries”, even “with this effort of companies not to pass on, or to pass on moderately, the increase in costs”.

He said that as the Portuguese tax system is “progressive”, “it may happen that a wage increase means that a more significant part of that increase goes to the state and not to the workers themselves”.

For CIP this seems “morally unacceptable”, so it defends that for all wage increases that may occur “a formula may be found – and here it will be with the reduction of contributions on work, whether in terms of Social Security, or in terms of income tax IRS – and that the State should understand not to take advantage of something that happens precisely to restore liquidity to families that have lost it through costs”.

If companies “have to respond to this loss of liquidity and at the same time do not have this understanding from the State, it naturally ends up being reflected in a greater increase of company costs”, he concluded.

Armindo Monteiro also highlighted that in the execution of the budget it is verified that revenue in terms of personal income tax, IRC corporate income tax and VAT “is increasing in a very significant way, in some cases it is increasing 25%”.

In terms of absolute figures, “at this time, compared to the same period last year, [tax] revenue is increasing by 5.4 billion euros and this was not even foreseen in the general state budget, it is an over-collected amount,” and so, “by analogy, we are talking about extraordinary profits.

This amount “we believe should return to the economy that generated it and who generated it were families and businesses, in the form of VAT, IRS and IRC, and there is therefore a very significant gap so that there is this return,” argued the vice president of CIP.