EU Business Confidence Holds Steady

February 7, 2017

Confidence among chief executives in the European Union (EU) remained stable in the last quarter of 2016. The YPO Global Pulse Confidence Index for the EU edged up to 60.9, its highest level since April 2016.

After reporting the highest confidence globally in the third quarter, the EU now trails Asia and the United States, the most confident region in the world in the fourth quarter of 2016.

While the overall picture in the EU remained unchanged, there were differing trends within its largest economies. Economic confidence in the United Kingdom slumped 4.5 points to 55.0, its lowest level since April 2013 following the decision to exit the EU. Germany also reported a gloomier outlook in the fourth quarter, slipping 2.8 points to 56.3, following slower-than-anticipated growth and ongoing political unrest in the country.

Elsewhere, France reported a more positive outlook, moving up 2.9 points to 62.6, and Italy climbed 5.6 points to 61.3. Spain remained relatively unchanged at 67.1

“A low and durable level growth seems to be reality for the EU. It is, however, very encouraging to observe the persisting optimism coming from French companies chief executives even though they remain concerned by the results of the next presidential elections to take place in the first semester of 2017,” said Boris Derichebourg, President of Derichebourg Multiservices and a member of the YPO Paris Chapter.

Globally, the YPO Global Pulse Index for the fourth quarter of 2016 climbed by 3.0 points to 62.2, its highest level in two years. The United States reported the highest levels of economic confidence in the world, increasing by 4.2 points to 64.6, its highest level since January 2015. Asia gained 1.2 points to land at an optimistic 61.2. Elsewhere, confidence in Latin America increased by 2.4 points to 58.3, while confidence in the Middle East and North Africa jumped 5.6 points to 59.5. Africa reported a 0.8-point decline, landing at 54.7, making it the second-least confident region in the world after non-EU Europe, where confidence increased 2.5 points to 54.3.

Key findings in the EU

Chief executives remain bullish about the year ahead

EU business leaders remained optimistic about the prospects for their own organisations over the next 12 months. Regionally, the survey’s key indicators, sales, hiring and fixed investment, indicated a positive outlook. The YPO Sales Index showed that nearly two-thirds of EU participants (61%) expected to increase revenue in 2017, compared with only 6% who predicted a decline in sales. Similarly, the YPO Employment Index showed that 36% expected to increase headcount in the year ahead, versus 6% who predicted a decrease in the size of their workforce. The YPO Fixed Investment Index found that 46% expected to increase fixed investment, against 7% who predicted a decline.

Regarding the overall economic and business climate, 40% of EU chief executives believed that conditions would improve in the first half of 2017, while 47% felt that there would be little or no change. Only 13% expected the economic landscape to deteriorate over the next six months.

Confidence slumps in the United Kingdom

U.K. business leaders reported a much gloomier outlook in the fourth quarter of 2016, hitting its lowest level since April 2013. At 55.0, confidence is now lower than it was in the immediate aftermath of the Brexit referendum vote, when confidence slumped to 57.9 in July 2016. Although confidence bounced back in the third quarter, climbing to 59.5, the short-term effects of Brexit seem to have impacted sentiment, with a weakening pound and ongoing uncertainty surrounding Britain’s economic future outside of the EU, and possibly the European Single Market.

When asked to assess whether business and economic conditions would improve in the first half of 2017, only 20% of YPO chief executives in the United Kingdom expected conditions to become more favourable, and 19% expected to see a deterioration, while the majority (61%) predicted that the economic climate would remain relatively unchanged.

When assessing the prospects of their own organisations in 2017, U.K. chief executives were far more cautious than in the previous quarter.

Half predicted that they would increase sales in the next 12 months, versus 63% in the third quarter. More than one-fourth (26%) of business leaders expected to increase staff headcount, against 39% in the previous quarter. Only 25% predicted that they would increase fixed investment in the coming year, compared to 46% in the previous survey.

The quarterly electronic survey, conducted in the first two weeks of January 2017, gathered answers from 1,514 chief executive officers across the globe, including 193 in the European Union.

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