Front Page	E-mail PagePrint Version

Survey shows companies largely positive despite ongoing economic slowdown

BRUSSELS, Belgium – 04/25/08 – European Union-based businesses are cautiously optimistic about the economic future amid increasing uncertainties, according to a recent survey conducted by BusinessEurope, the umbrella organization of European business federations.

"Despite the numerous headwinds, [EU businesses] so far remain cautiously optimistic and sees no risk of a recession on this side of the Atlantic,” the group said in a report based on the survey.

The report said the survey showed that firms based in the 27-nation EU “expect EU economic growth to average 2.0% this year with a further decline in the unemployment rate to 6.8%,” a projection roughly in line with an forecast made by the European Commission earlier this year.

The optimism came from the fact that higher-than-expected growth over the last two years provided a good basis for the EU to face present challenges.

At around 3.0% over the last two years, growth in the EU has been robust by historical standards and stronger than in the US.

Meanwhile, EU labor markets have improved substantially and corporate balance sheets rest on sound foundations despite an expected fall in profitability in the near term.

Externally, European exports are bolstered by robust demand from emerging as well as oil-producing economies and should grow on average by close to 5.0% this year, offsetting weaker demand from the US.

High household savings, a less overstretched housing market and a less exposed banking sector make the European economy less vulnerable to the present financial market turmoil than the US.

BusinessEurope expected the economic growth in the euro zone to stand at 1.7% this year. In 2009, it expected growth to stabilize, averaging 2.1% in the EU and 1.8% in the euro zone.

However, the report acknowledged that downside risks to the scenario largely dominate in the context of the unresolved credit market crisis.

Besides growing evidence of a continued economic slowdown in then US, protracted financial market turmoil, rising commodity prices and a weakening dollar, the report said European companies also face “home-grown dangers,” notably high inflation.

BusinessEurope said the business community broadly endorsed the European Central Bank (ECB)'s monetary policy to date and in particular the bank’s handling of the financial market crisis, urging EU governments to remain committed to fiscal discipline at the current difficulties.

It called for responsible wage demands by trade unions in order to avoid second-round effects of inflation.

"At present it is essential that inflation returns to levels consistent with price stability," the report said.

In an effort to fight inflation, the ECB left its benchmark interest rate unchanged for months despite the need to stimulate a slowing economy with rate cut.

BusinessEurope also said the EU “must continue to forcefully engage its global partners to ensure sustainable exchange rate patterns and to avoid further deepening of the credit market crisis.”

European companies “are resilient and they continue to invest, export and create jobs despite all the uncertainties and we now count on governments to create the right conditions that will support this confidence and hence growth in the years ahead," said BusinessEurope Secretary General Philippe de Buck. 

The European Commission is scheduled to release a new EU-wide economic forecast next week.

Go back, or read the latest Front Page stories:

Obama Should Complete Doha Round, CEOs Say

NEW YORK – 11/20/08 – A number of senior level corporate executives are urging the incoming Obama Administration to complete the long-stalled Doha Round of international trade talks in a new report published by the Wall Street Journal; responding to the report, New York Democrat Sen. Charles Schumer said that the Obama Administration and ''Democrats in general think we should trade in the global world,'' but concerns about ''income inequality'' should make business and government ''work together to cushion the blow.''