Around 35% of European respondents (compared to 32% globally) consider uncertain monetary policy and increasing cost of capital as the biggest challenge to growth. With inflation beginning to decline in November 2022 after 17 months of upward trajectory, CEOs are closely following central bank activity for potential course changes.3 If signs are sustained that inflation has peaked, the European Central Bank will likely slow the pace and scale of interest rate hikes.
In response to the current recession, EU policymakers are considering more dovish economic recovery proposals, as opposed to the top-down austerity rules seen during the sovereign debt crises a decade ago. This includes rethinking debt rules to help countries navigate this downturn.4
In tandem, EU governments face pressure on how to handle the discontent of citizens protesting against soaring cost of living, and questions still remain on how extensively they will intervene. In particular, governments are reluctant to pursue austerity measures as a result of protests from the crisis 10 years ago.
Meanwhile, for CEOs, financing will continue to be a challenge as a result of increased capital costs that will likely persist, hindering growth plans. And with more fragmentation across the global economy, restrictive regulatory policies also pose obstacles to business growth, with 31% of European respondents citing this as the greatest challenge.
Avoiding reactionary responses, European CEOs use the downturn to prepare for the next disruption
European CEOs have learned from past financial crises and recognize that it is essential to think of new and sustainable strategies to capitalize on the opportunities. Five directives in particular offer a path forward, and are worth exploring:
- Investing in operations: European CEOs identify investing internally to boost operations as extremely important. Risk isn’t only about extraordinary events; day-to-day operational failures can also lead to losses, regulatory action and reductions in share prices. Operations such as finance, accounting and supply chain have emerged as the top priority area of investment for European CEOs (41%).