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The CEO Imperative series

How European CEOs remain future positive while rising to the AI challenge

The latest EY European CEO Outlook survey finds country variation in resilience, with strong investment in AI capabilities on the increase.

In brief

  • European CEOs have a positive outlook for their businesses despite headwinds, but they must act if they want to translate revenue growth into profitability.
  • Investment in generative AI (GenAI) is increasing, but challenges remain in embedding it into strategic planning, and buying or building capability.
  • CEO pursuits have temporarily shifted from acquisitions to joint ventures (JVs), strategic alliances and divestments.

This edition of our quarterly study of 390 CEOs across Europe, the latest part of CEO Imperative Series, shows that, while the volatile macroeconomic environment continues, European CEOs are relatively optimistic about the outlook for their company’s financial performance, with around two-thirds expecting higher revenue and profitability growth in 2024 compared with 2023. The positive sentiment is boosted by the European Central Bank’s recent pause on monetary tightening after 10 straight rate hikes, which is expected to provide some cushion to the otherwise slowing economy.

Tech and AI form a pivotal role in a company’s long term success. CEOs are at different stages along their journey to strategize and operationalize AI into business as usual, with a number of challenges emerging for some. Bolstered by a range of government investment initiatives, the urgency for CEOs to get ahead in AI before their competition does, is a subject high on their Board agenda.

CEOs in European economies are focusing major investments across acquisitions, capex, R&D and venture capital to fuel growth and competitive advantage. This is despite, and because of, the continuing volatile macroeconomic environment. There is a clear recognition among CEOs that the new environment requires enhanced investment across verticals. And where needed, CEOs are prepared to make hard choices to fix, sell or close unprofitable parts of the portfolio, or to exit particular markets.



Country-level variation defines a Europe with mixed fortunes

Optimism and resilience shine in some geographies while others struggle.

While similar challenges face Europe-wide markets, some countries show more resilience and positive outlook in the short term.


Optimism is most clearly seen in Germany, where 72% of CEOs (the highest share of all European regions) expect higher revenues in 2024 compared with 2023. EY analysis of the top 100 German companies by market capitalization indicates that nearly 90% have raised their revenue forecasts for FY24 as they align themselves to the new economic dynamics. This is despite a challenging economic backdrop amid cooling global demand, an industrial sector downturn and squeezed consumer purchasing power.


Revenue is not the same as profitability, with the latter being adversely impacted by higher costs in supply chain, energy, finance and the workforce. In a fragile economic environment with stubborn inflation, 35% of German CEOs (vs. 23% of European CEOs) believe it is difficult to pass on higher costs to customers who may be able to negotiate better prices or seek out cheaper alternatives. Therefore, optimizing operational efficiencies and reducing their cost base is a priority for German CEOs to maintain competitiveness and market presence.

In comparison, the French economy is proving to be relatively resilient, with GDP in the third quarter of 2023 growing modestly on the strength of household and consumer spending, and inflation easing. Seventy percent of French CEOs are expecting higher profitability growth in 2024, highest among European countries, while only 46% expect higher revenue (the lowest in Europe).

The differential between higher profitability and more static revenue overall lies in actively deploying cost management techniques, including process optimization and leveraging technology, to drive efficiency and enhance profitability. Only one-fifth (22%) of French CEOs believe cost constraints to be a barrier to growth, with nearly half of respondents reducing costs by shifting their talent strategy toward contract or hourly workers to avoid full-time employee expenses such as benefits and taxes.

CEOs in the UK expect higher revenue growth but moderate profit in 2024 as the UK economy continues to navigate multiple headwinds such as stubborn inflation, volatile consumer spending and industrial output. Of all the regions, the UK CEOs (30%) consider slower economic growth in key markets to be the biggest barrier to growth in 2024, followed by 26% citing increased costs of doing business as another top barrier to maximizing revenue and profitability.

In the Nordics, nearly three-fifths of CEOs have high revenue and profitability expectations in 2024. Compared to most other European countries, the Nordics countries have recovered more quickly after COVID-19. However, the high cost of capital (22% in the Nordics versus 15% in Europe overall) is the biggest growth barrier, as high interest rates and taxes make it challenging for businesses to grow and compete.



Setting up the AI agenda tops priority list

CEOs around Europe try to harness the power and promise of AI.

Almost all European CEOs (98%) are making or planning significant investments in generative AI (GenAI), according to the latest findings. Despite accelerating GenAI investments to maintain a competitive edge, almost two-thirds of European CEOs (66%) feel the uncertainty around GenAI is creating challenges in the development and implementation of an AI strategy.

Italian CEOs bet big on GenAI

At a country level, Italian CEOs acknowledge the urgency to understand the implications of GenAI on their business, with nearly 80% of CEOs (highest in all European regions) agreeing that they must act now on GenAI to avoid giving competitors a strategic advantage. More than four-fifths (88%) — again the highest across European regions — of Italian CEOs also acknowledge the fact that GenAI will challenge them to disrupt their own business model.

As part of Italy’s plan to become a “globally competitive center” for AI, the government has launched a €150m fund¹ to promote startup investments in AI. Italy had previously adopted the Strategic Program for AI 2022-2024, which outlined policies to promote science, technology, engineering and math (STEM) subjects and increase the number of doctorates to attract international researchers.

A majority of Italian CEOs have already completed certain aspects of AI deployment in their organization, with nearly half assessing how to effectively govern the risks unique to AI, tracking AI regulations to understand their implications and determining what proprietary data will create competitive advantage through AI.

The UK remains one of Europe’s AI leaders

The UK closely follows Italy, with nearly three-fourth (74%) of CEOs signaling the need to push their companies to act quickly on GenAI. However, the current market for dealmaking is becoming more complex amid a volatile macroeconomic environment across Europe, increased competition and the need to adapt to new technologies and business models. More than three-quarters of UK CEOs (77%) — the highest in Europe — agree there has been a sharp increase in companies claiming to have AI expertise, making it harder to identify credible suppliers, partners or merger and acquisition (M&A) targets.

In response, the UK government plans to invest £300m² to boost funding for two supercomputers that will support research into making advanced AI models safe. At the same time, there are numerous government initiatives to help companies fund solutions around AI development. For example, the Fairness Innovation Challenge allows companies to apply for up to £400,000 in incentives to produce solutions to combat bias and discrimination in AI systems.

Companies in the UK are also front-runners in terms of capabilities developed to accelerate progress on GenAI, with nearly 90% of CEOs stating that they are able to identify and prioritize GenAI use cases. This is closely followed by the 84% of CEOs who say they have a vision for how their business model might be disrupted in the long term. At the same time, more than half of UK CEOs (54%) have already hired new talent with relevant AI skills.

German CEOs are less urgent in their AI investment

While 97% of German CEOs are making or planning significant investments in AI, only 64% (vs 82% in Italy and 69% in Europe) agree that they must act now on GenAI. Their urgency to act is affected by the prevailing uncertainty around benefits versus risks, making it difficult for them to implement an AI strategy (60% in Germany vs. 66% in Europe), compounded by a lack of sufficient technical knowledge to guide their AI strategy (62% of German CEOs vs. 69% of European CEOs).

To help build out a broader AI strategy, CEOs should pursue several key initiatives such as addressing talent gaps and developing robust governance frameworks in the near term to establish foundational AI capabilities.



Wide-ranging investments continue to drive competitive advantage

CEOs in major European economies are planning major investments to fuel growth.

There continues to be clear recognition among European CEOs that the volatile macroeconomic environment requires enhanced investment across the board, not just in tech and AI capabilities. Most of the respondents across Europe (nearly 70%) are planning to increase investment across research and development (R&D), capex, M&A and through corporate venture capital.

At a country level, France is leading other European regions, with four-fifths (80%) of CEOs planning to improve their investment in R&D and capex in 2024 as they look to channel their companies’ profits back into the business. EY analysis of the top 100 French companies by market capitalization shows that nearly 80% have increased their estimated investments in capex as a percentage of sales over the last year. Investment varies across sectors, with major activity happening in sectors such as life sciences, industrials and consumer as companies continue to invest in new products, services and process technologies.


The government’s France 2030 investment plan³ provides support for industrials and deep-tech startups in terms of innovation, employment and strategic independence on innovative products. In addition, Innovation Santé 2030, the health component of the investment plan, aims to provide companies with a strategy to help France become the leading European nation in terms of innovation and sovereignty in health.


In the UK, three-quarters (75%) of CEOs are signaling a return to higher levels of investment across the board as uncertainties around monetary policy decrease. The Bank of England recently paused its rate hike cycle, leaving interest rates at a 15-year peak, and has hinted it will maintain the statusquo. With markets now accepting a higher-for-longer rate environment, inflation pressures recede and the growth outlook becomes clearer, even if at lower levels.


Transactions remain stable, with potential for an uptick

M&A activity is expected to continue at a stable, albeit lower, path. Heading into 2024, there could also be an uptick in more significant deals, as CEOs become more comfortable with the new macroeconomic environment. A clear majority of European CEOs (87%) plan some form of transaction over the next 12 months. However, there has been a sharp contraction in intentions to actively pursue acquisitions in that timeframe, dropping from 56% (vs. 59% globally) in July to 29% (vs. 35% globally) in October. The focus is now on joint ventures (JVs), strategic alliances and divestments, with more than two-fifths of European CEOs indicating a desire to reassess portfolios, boosted by the reopening of initial public offering (IPO) markets.


Despite interconnected issues creating an uncertain near-term environment, CEOs remain keen to invest to reshape their business. There is a clear recognition among CEOs that the new environment requires enhanced investment across verticals, in addition to tech and AI capabilities. To stay ahead of the competition, CEOs need to make hard choices to fix, sell or close unprofitable parts of the portfolio, or to exit particular markets. In addition, while businesses recognize the challenges and issues associated with the adoption of AI, it is essential for CEOs to make sure they have a sound AI strategy that caters to all aspects related to talent, science, tech and regulation.


With dynamic and multipronged macroeconomic impacts across Europe, CEOs’ approach to transactions is evolving. The new environment requires enhanced investment across verticals, particularly in tech and AI capabilities. CEOs are transforming portfolios through divestments, joint ventures and alliances as well as M&A, while at the same time trying to build a sound AI strategy that caters to all aspects of talent, science, tech, and regulation.


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