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Is it too early to talk of Europe’s green shoots of economic recovery?

If policy-makers, not just at EU level but also across the 28 member states, pursue deeper structural reform packages then Europe will soon prosper – insists Arnaldo Abruzzini

The EUROCHAMBRES Economic Survey has been running for 21 years. Since the financial and eurozone crises began, analysing the responses from tens of thousands of businesses about their expectations for the year ahead has been an arduous process for our network. Encouragingly though, the results of this year’s EES – based on more than 59.000 replies – reveal a re-emerging sense of optimism across much of the European business community.

Year-on-year increases are revealed for all six EES indicators – business confidence, total turnover, domestic sales, export sales, employment and investment. Confidence is particularly positive and is reflected in similarly upbeat forecasts for turnover and domestic sales. Export sales, which were often the only beacon of hope in recent years, maintain a steady rise. Predictions for employment and investment increase too, though at a more moderate pace.

It is interesting to dig a little deeper into these broadly positive pan-European results. Lithuania registers the most optimistic forecasts, while Cyprus is frequently the most pessimistic. In fact, a north-south divide emerges from the results – notably for business confidence and employment – with Italy, Slovenia and Greece reporting lower expectations for the year ahead while the Baltic States and Finland are largely optimistic. Strikingly though,

Portuguese businesses differ from their more pessimistic southern neighbours and register dramatically improved forecasts compared to 12 months ago.
Escalating levels of unemployment dominate current European Union policy discussions, including the Paris Youth Employment Summit earlier in November, so the relatively cautious employment figures may be a cause for concern. We nonetheless consider that a certain lag between the first signs of economic recovery and business commitments to recruitment is predictable. This lag can be minimised if member states pursue labour market reforms and if the worrying skills mismatch is addressed effectively through better forecasting, effective education and training and increased mobility.

The same applies to the relatively moderate investment forecasts. The predicted levels must increase in subsequent years if businesses are to capitalise on the emerging recovery and to contribute to its sustainability. But investments of course have to be paid for so policy-makers must implement measures to revive bank lending, stimulate cash flow and encourage equity based financing. It is encouraging that the proposal for a ‘European guarantee platform’ seems to be gaining impetus, but this must materialise swiftly into a wide reaching and adequately resourced system of guarantees and counter-guarantees that will facilitate affordable lending to small and medium-sized enterprises.

So, the broadly optimistic results corroborate the European Commission’s recent positive economic forecasts for 2014 and are cause for encouragement. They indicate that the tough structural reforms in response to the financial and single currency bloc crises are beginning to have an impact in countries such as Portugal, Italy and Spain, while there is still a lot of work ahead – particularly in Greece and Cyprus but also more widely across much of the EU.

We can already see that 2014 will, therefore, be a pivotal year not only for the EU’s institutions but also more significantly for its economy. The commission referred recently to the danger of reform fatigue. From a business perspective, this danger is heavily outweighed by several years of recession fatigue. But the continent may be turning the corner. If policy-makers, not just at EU level but also across the 28 member states, pursue further and deeper reforms then the green shoots of recovery can grow and Europe will prosper.

Arnaldo Abruzzini is secretary general of EUROCHAMBRES – the association of European Chambers of Commerce representing 20 million enterprises across 43 countries

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