European business confidence hits rock bottom | Popgen Tech

Business confidence in Europe hit rock bottom in the second half of 2022, with a third of the region’s biggest industrial companies expecting to halt or scale back operations in the bloc due to record energy prices and slowing demand.

US business leaders are equally gloomy about Europe’s prospects, expecting a deep recession in the EU over the next 12-18 months, versus a short-lived and shallow downturn at home, according to a survey by the European Round Table for Industry lobby group for large businesses, and the Conference Board, the American think tank.

The findings add to growing evidence that the war in Ukraine is taking a heavy toll on EU industry. Earlier this month, S&P Global’s purchasing managers’ indexes showed the sharpest decline in private sector activity since November 2020. Industrial sectors from chemicals to fertilizers to ceramics have been forced to suspend production due to rising energy costs, while others ramp up imports.

Martin Brudermüller, chairman of ERT’s competitiveness committee and chairman of German chemicals group BASF, said he was not surprised by the answers. “I have already seen firsthand the impact of the energy crisis on Europe’s energy-intensive industries and the ripple effect throughout the value chain. We are still at real risk of a wave of deindustrialisation, as continued high energy costs undermine the global competitiveness of European production sites.”

The twice-yearly survey of European business leaders found that the level of confidence in Europe fell from 37 in the first half of 2022 to 24 in October, the lowest since the start of the pandemic. US business leaders’ confidence fell to lows not seen since the 2007-2009 recessions, from 42 to 32. A score above 50 reflects more positive than negative reactions.

“The outlook for the eurozone is clouded amid rising energy prices dampening manufacturing, and the surge in inflation biting into real incomes and consumption,” Riccardo Marcelli Fabiani, economist at Oxford Economics said in a recent briefing note.

The industry also warns of the risk that a flagship $369 billion green technology initiative in the US, known as the Inflation Reduction Act, could divert even more investment away from Europe.

Around 50 members of the ERT met this week with France’s President Emmanuel Macron and European Single Market Commissioner Thierry Breton to demand a “compelling European response to the IRA”. Without it, there could be a “further wave of deindustrialization as the US attracts the latest waves of investment in new operations and R&D”.

This would have “potentially disastrous implications” for the small and medium-sized enterprises that dominate industrial ecosystems across the EU, the ERT said.

Like their larger counterparts, small businesses are feeling the pain of high energy prices, inflation and volatile supply chains. A recent survey of 42,000 businesses in 25 countries by Eurochambres, which represents more than 20 million businesses across the EU, found that confidence for next year was “even lower than during the financial crisis of 2008-09 and the height of the pandemic”. All indicators showed that companies expected the situation to get “worse”.

This view was supported by the ERT/Conference Board survey in which nine out of 10 respondents expected the economic outlook to worsen over the next six months.

Nevertheless, the study found that more than 90 percent of respondents intended to maintain or increase investment in green energy.

Chinese business leaders, meanwhile, stood out as outliers in the survey with the overall measure of their business confidence improving in the second half of 2022, although it remained generally negative.

In a sign that China is succeeding in its ambition to move up the value chain, around a third of European business leaders said China is an important driver of research and development and innovation for their businesses.