Weak investment growth is expected in 2023

“A number of economic and financial factors lead to the expectation of weak growth in business investment in 2023,” the HCP notes in a note titled “Contribution to preparations for the forecast economic budget 2023: Business investment: what prospects for 2022-2023” . “.

This situation will strengthen the deficit in the accumulation of physical capital recorded during 2016-2020 and affect the dynamics of economic growth in the medium term, the same source emphasizes that “if the inflationary crisis worsens and the recession prolongs. , corporate failures will be even stronger. The impact on employment, investments and taxes will be more noticeable from 2023.”

Indeed, in this new issue, dedicated to the central question of whether the recovery in GFCF (Gross Fixed Capital Formation) is sustainable or whether new factors, in particular companies, are hindering a sustained recovery of investment, the authors primarily focus on supply constraints and insufficient demand.

Thus, they recalled that according to business trend surveys conducted by HCP, companies faced supply challenges from the second half of 2021. In the manufacturing industry, 65% of companies stated that supply issues were a barrier to their production growth in mid-2022, compared to 15% at the end of 2019. Metal, mechanical, electrical industry, electronics and construction materials industry are the most affected.

The structure of the factors limiting the development of activity also shows that the insufficient “demand” barrier is gradually rising, especially in the manufacturing industry, where the specific weight of companies facing this brake increased from 27% in 2019 to 45.7% by mid-2022. Prospects for a swing to a new global recession in 2023 will affect output and weaken the recovery in activity.

“Companies will be more prudent in terms of investment, so they will be less dependent on bank financing when called upon to repay debts contracted under the guaranteed loan programs and stimulus created in 2012 to fix their domestic finances. post-covid era. In addition, there are effects of monetary policy tightening, which may prompt banks to tighten lending conditions,” HCP emphasizes.

The same source adds that the companies will again face the suspension of financing for the development of their activities against the background of the turn in interest rates.

In addition, the HCP also notes that companies are suffering from the impact of an inflationary shock on production costs following the increase in the prices of imported raw materials starting in mid-2021. For all of 2021, their intermediate income rose 6.7% year-over-year, instead of an average 0.6% annual decline over 2014-2020.

This increase marked all areas of activity, HCP noted, with the exception of companies in the chemical industry and commercial activities, which are less likely to fully pass on this inflationary shock to sales prices in 2021.

Breaking down by category, details the HCP, the price shock further penalizes vulnerable structures in manufacturing industries, especially very small businesses, which face an increase in the prices of their inputs by around 7%, instead of +3.2% for large companies only. .

The impact of higher input prices on corporate profitability will be differentiated in 2022 and will depend on the ability to implement increases in sales prices across business areas in the context of weak domestic demand dynamics, HPC notes. If companies assume 25% of their financial costs due to the increase in the cost of their inputs, the textile and woodworking industries will be the only sectors to improve their margin ratio by 1-2 percentage points. in 2022. Other fields will be observed with a decrease in their margins compared to 2021. On the other hand, the transfer of the inflationary shock to sales prices in terms of inputs will allow to increase the profitability of industries. and will limit the decline in margins for services. The introduction of wage increases within the framework of the social dialogue planned for 2022 will further strengthen the reduction of margins compared to 2021.

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