Eastern European firms cut costs as employee pressure builds

While businesses across Europe are struggling with inflation and interest rate rises, these issues are particularly acute in Eastern Europe, according to Intrum’s European Payment Report 2023.

An overview of the European Payment Report (EPR) results for Eastern Europe, including: Bosnia, Bulgaria, Croatia, Czech Republic, Poland, Romania, Serbia, Slovakia and Slovenia.

Businesses in the region are most likely to say that they are cutting costs as a way to manage the economic downturn and disruption (41 per cent compared with 36 per cent in Northern Europe).

This trend is understandable considering the supply chain pressures that companies across Eastern Europe have experienced as a result of the war in Ukraine. This is feeding into soaring inflation.

Countries in the region are more like to report that inflation will impact their customers’ ability to pay on time than elsewhere in Europe. Those with the most concerns are Bosnia Herzegovina, where 70% say this is an issue, followed by Serbia (69%) and Bulgaria (66%). The European average is 59%.

Czech inflation concerns low

The Czech Republic is an anomaly in this regard as only 45% of businesses said they were concerned that inflation would damage payments. Likewise, only 41% of Czech businesses said inflation was making it difficult for them to pay their own suppliers on time. This is lower than the European average of 56%.

However, in Bulgaria, Poland and Slovenia, the figures are significantly higher - with 65% of Bulgarian businesses struggling to make payments to their suppliers in time, 62% in Poland and 60% in Slovenia.

A natural reaction to the mounting pressure is to seek efficiencies, leading many to cut costs in reaction. However, experts warn that businesses need to be wary of cost-cutting at the expense of growth initiatives, as this is likely to slow recovery in the future.

Employees demand pay increases

Meanwhile, Eastern European countries face other challenges linked to inflation. In many countries, notably Czech Republic, Romania and Bosnia Herzegovina, around 90 per cent of respondents say that their employees have asked for pay-rises or are likely to do so soon.

Anna Zabrodzka-Averianov, Senior Economist at Intrum, believes that demand for higher pay will become increasingly problematic, as employees look to restore the purchasing power that they lost last year. “The risk is that these wage increases add to the inflationary pressure, as companies will transfer at least some of their increased costs to the prices they charge for goods and services,” she explains.

Many countries expect inflation to last for at least another year – eight in ten Croatians and three quarters of Bulgarians feel this way. However, those in Bosnia Herzegovia, Slovakia and Romania are less pessimistic. Only half (50%) of the Bosnian businesses surveyed expect inflation to last at least a year, followed by 57% of Slovakian and 60% of Romanian firms.

Insights from the EPR Country Snapshots 2023

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