EY survey shows how CEOs are using current crisis to build resilience for the next disruption
The latest winter economic forecast for 2023 by the European Commission presents an upbeat outlook for growth and slightly lower inflation projections. As per the revised estimations, the EU and the euro area are now both expected to close off last year with an economic growth of 3.5%. For 2023, the European economy is set to narrowly escape the recession that was predicted back in autumn. GDP is projected to increase by 0.8% this year and 1.6% in 2024. Furthermore, headline inflation in the EU is expected to drop from 9.2% in 2022 to 6.4% in 2023 and then to 2.8% in 2024.
Against this backdrop, the January 2023 EY European CEO Outlook Pulse survey finds that while the majority of European CEOs are expecting a global slowdown, 52% have reason to expect positive developments on a longer time horizon. Since autumn, the EU economy has seen a number of positive developments. There has been some respite in the form of fading pressures from gas energy prices driven by a sharp fall in gas consumption and ongoing diversification of supply sources. Despite the energy shock and ensuing record high inflation, the economic slowdown in the third quarter was less severe than originally anticipated, while the EU economy remained stable in the fourth quarter, instead of contracting by 0.5% as expected earlier in autumn. The labour market also remained robust, with the unemployment rate in the EU holding steady at its all-time low of 6.1% in December. Additionally, a downward trend in inflation rates over the course of three months suggests that the peak has passed.
However, the EU economy remains afflicted by a range of challenges. The high cost of energy still poses a challenge to both consumers and businesses, and more than 90% of the items in the HICP basket are experiencing price hikes that are above average. These inflationary pressures are spreading across various sectors. Consequently, monetary tightening is expected to persist, which may weigh on investment activities.
According to the EY survey, approximately 35% of European CEOs consider uncertain monetary policy and rising cost of capital as the biggest challenge to growth. With China reopening, supply chain pressures have somewhat eased, and only 32% of European CEOs now regard supply chains as the main issue, a decrease from 41% in the October survey. High inflation continues to be a concern for 31% of European CEOs, but other upside risks are starting to become dominant. Market fragmentation across the global economy and restrictive regulatory policies are now viewed by 30% of European respondents as obstacles to business growth. Tight labor market conditions have been identified as a significant impediment to business growth by 29% of European CEOs, with the expectation that this could ultimately lead to stronger-than-anticipated wage pressure.
