The FINANCIAL — Europe’s medium-sized companies are overwhelmingly positive about the current state of business, and many plan to invest for growth in the coming six months, but sentiment varies strongly across the continent, according to the EY’s first European Mid-Market Barometer 2015, a study of 6,000 European companies with annual revenues between €10m and €500m.
Overall, European middle-market companies see their current and future prospects as positive. Eighty-seven percent deem the current state of business to be good or quite good, half (50%) expect their company’s turnover to increase in 2015 compared to 2014, and 46% expect performance to improve over the next six months, with only 7% expecting it to deteriorate.
“The overall mood of middle-market companies in Europe is hugely positive, with the vast majority of firms across the continent confident about the immediate future, while planning to maintain or increase investment in their businesses. This is very important for Europe, as these firms are the backbone of the economy, providing the jobs, innovation and sustainable growth to spur the continent into a sustained period of economic recovery and prosperity,” Julie Teigland, EY, EMEIA Managing Partner Accounts and Markets, said.
However, this picture varies dramatically across the continent. When combining responses on current sentiment and expectations for the future, to create an overall measure of business climate1 on a scale of -100 to +100, companies in Turkey (65), Ireland and the UK (both 63), Denmark (58), Netherlands (56), Portugal (55) and Spain (51) are the most positive. Meanwhile, the five lowest ranked on this measure of confidence are Russia (43), Germany (40), Italy (37), Poland (19) and Greece (-21).
Middle-market companies are more optimistic about the prospects of their own country than those for Europe as a whole (32% optimism in domestic economies compared to 28% for Europe), with Ireland (68%/59%), the UK (49%/42%) and Spain (48%/42%) the most optimistic about the economic climate in both their country and in Europe over the next six months. Germany has a domestic optimism level of only 17%, with 33% of German companies predicting deterioration in its home economy. Likewise, only 18% of German middle-market companies are optimistic about a European recovery in the next six months, with 41% predicting deterioration. Greece is the most pessimistic on both counts – with 47% and 46% expecting deterioration locally and in Europe respectively, according to EY.
One reason for the pessimism appears to be the ongoing crisis in Ukraine, with one in five (21%) indicating that their business has felt the effects of tensions in the area, with the manufacturing sector the most deeply affected (25%). Countries that are more affected than average include Turkey (40%), Greece (34%), Russia (33%) and Germany (26%).
“Despite overall optimism, there are divergent views across the continent. Encouragingly, middle-market companies in countries that were hit hard by the financial crisis in 2008 are now rebounding strongly, especially in places where sometimes painful economic reforms were enacted, such as Spain, Ireland and the UK. However, Greek companies still seem to be deeply affected by their country’s continued problems,” Peter Englisch, EY’s Global and EMEIA Family Business Leader, said.
“The survey clearly shows that there is a high degree of pessimism and concern for the future in Germany and other German-speaking countries. This is down to a number of factors, some of them cyclical. Key to this negativity seems to be the uncertainly caused by the ongoing conflict in Ukraine. Germany, Austria and Switzerland are impacted more than other large economies due to geographic proximity and fears over future supply of raw materials, especially oil and gas, and the impact this will have on energy prices,” he added.
The investment picture is largely one of stability, with 64% of middle-market companies planning to keep the same level of investment in the next six months, while 29% plan to increase and 7% to reduce investment in this period. Turkey leads on investment intentions (50% plan to increase investment), with Switzerland (12%), Austria (11%), Greece, Germany and Russia (10%) the most likely to reduce investment.
One impediment to growth identified in the survey is a shortage of skilled labor. Thirty-one percent of companies agree that it will affect turnover to some extent, with Austria (59%), Switzerland (55%), Greece (55%) and Germany (51%) the most affected by a skills shortage. The UK (25%), Ireland (13%) Sweden (19%), Finland (10%), Denmark (5%), and Norway (4%) are among the least affected.
When it comes to views on how government can help, middle-market companies in Europe are largely in favor of public investment to promote growth (63%) and less keen on budget consolidation and debt reduction (37%). Ireland (81%), Greece (80%) and Norway (79%) were most supportive of public spending policies, while Germany (56%) Luxembourg (59%) and Switzerland (61%) are the biggest proponents of austerity. In addition, 69% of middle-market companies rank tax reductions and 42 % reductions in bureaucracy as measures that would boost business in their home countries, according to EY.
“One of the most encouraging signs for Europe is the strong investment picture. If the middle market is investing in the future it bodes well for sustained growth and employment. One potential obstacle in the road is a lack of skilled labor, which can hamper companies just at the point where they are ready to grow. Governments across the region need to think about education, training and immigration reform to address this issue,” Teigland said.
Discussion about this post