Falling Oil Prices and Russian Sanctions Hit Business Confidence in Europe
European companies are under pressure as growth outlook drops 16% since Q1 2014.
Executive confidence in Europe has dropped for the third consecutive quarter as expectations for company and industry growth continue to slide.
Fewer than six in 10 (58%) of business leaders are anticipating topline growth in the next 12 months, down from 74% in the first quarter of 2014, according to research among over 1000 executives by member-based advisory company CEB.
There are a number of factors behind the drop in confidence, including the rouble collapse and the impact of sanctions imposed on Russia, particularly in countries like Germany which are dependent on Russian exports. Current EU sanctions include restrictions on trade with Russia’s energy, defence, financial sectors.
The energy sector has been the most badly affected, hit by investor uncertainty as oil prices continue to fall, while the telecoms and financial services sectors are close behind.
Companies are also putting the brakes on hiring new staff, with 24% of executives expecting total headcount to increase, compared to 30% last quarter. This is significantly lower than in the US, where almost twice as many executives (43%) expect to see more new hires in the next year.
Paul Dennis, Senior Director at CEB, said: “The start of last year was the most optimistic we have seen European business leaders for the last three years. However that confidence has been steadily eroded. This is partly as a result of geopolitical tensions and sanctions on Russia starting to take their toll.
“Companies that depend highly on Russian exports as well as those which are directly dependent on the oil industry – such as petrol services - are going to find the 2015 planning processes particularly challenging.”
Finance departments are also expected to struggle with managing internal costs in this environment, especially as most overhead functional spend is currently growing faster than revenues.
Dennis continued: “It’s not just a case of a lack of confidence in one particular area - it’s really across the board. The outlook for new orders, production and capacity levels have all declined, while expectations for consumer confidence also deteriorated considerably this quarter.
“Today’s businesses are more nimble than ever when it comes to reacting quickly to wider economic signals. Agility is vital to success in these fast-paced times but we must hope a drop-off in confidence on this scale does not become a self-fulfilling prophecy, making a double or even triple-dip recession a reality for Europe.”