The European economy is on the road to recovery and business confidence has picked up after one of the toughest decades in the post-war era. This is the thrust of a new report from the McKinsey Global Institute.
But the picture is mixed. Some companies around Europe are more optimistic about the outlook, but the majority remains nervous. They see some global trends as headwinds and are concerned about risks to the EU.
MGI conducted a survey of 2,000 C-suite executives in France, Germany, Italy, Poland, Spain, and the United Kingdom. It says the results highlight a desire for “more Europe” in the form of more integrated policies across the EU.
European businesses are
- More optimistic than economists’ forecasts
- Expecting EU gross domestic product growth of 2 percent annually over the next five years
- Expecting average revenue growth of 2.1 percent in the coming year
One in five predicts growth
About one in five companies predicts revenue growth above 5 percent. About one-third of firms expect revenues to stagnate or decline in the year ahead. Larger, internationally focused companies are most likely to expect future revenue growth.
Businesses see opportunities to invest, even as they amass cash to insure against risk and uncertainty. Corporate savings rose to almost €2 trillion in 2015. Firms are divided between those saving to fund investment (48 percent) and those building reserves (47 percent).
Uncertainty rather than weak demand, lack of opportunities, or access to finance is cited as the main barrier to investment. Most companies surveyed are positive about the effect of digitisation and emerging economies, but more negative about other global trends.
The EU will need to address
- Lingering areas of fragility
- Remaining financial risk
- The direction of the Eurozone
- Geopolitical concerns such as migration and populism
Positive versus negative
A positive view of digitisation, where the EU currently trails the United States, correlates with a more optimistic outlook for investment. Concerns about income inequality, rising populism, and antiglobalisation sentiment correlate negatively.
Just over half those surveyed think the EU has had a beneficial effect on their business. The most successful companies are the most positive. Smaller, less globalised companies tend to question the benefits of Europe and are less eager to invest in the future.
US and Chinese firms surveyed project even higher EU GDP growth than their European competitors on average, of almost 3 percent and 2.3 percent respectively.