Business gloom grows

Date: 23/11/1995

By Tim Jones

CONFIDENCE among European businesses has fallen sharply to levels not seen since 1993 as the recovery from the deepest recession in living memory appears to be running out of steam.

These are the conclusions of the UPS Europe Business Monitor, a wide-ranging annual survey of 1,473 business leaders in seven EU countries.

The survey shows that after touching a record high of 70&percent; in 1994, net optimism - the difference between those expecting the economic position of their firms to improve or deteriorate in the coming 12 months - fell to 52&percent;.

The biggest pessimists were to be found in France and Germany, where net optimism read 32&percent; and 44&percent; respectively.

For the fourth year running, the survey found that business executives expect Germany to be the motor of European growth, although the net figure has fallen from 71&percent; last year to 63&percent;. But only 48&percent; of German firms expect their country to lead a growth surge.

“It is as if there is still a halo effect around the country in the eyes of others, but this seems to be fading within Germany itself,” observes the report.

It concludes: “This fall-back in optimism is reflected in a general tendency among companies to draw in their horns and to pursue comparatively cautious strategies.”

The survey found that firms are keener to concentrate on core business than to expand into new production areas. They are choosing to cut costs rather than invest in new plant or staff and, if they do expand their work, are opting for short-term contracting and part-time recruitment.

A net 10&percent; of companies throughout Europe expect to reduce staff numbers, while an increasing proportion foresee a rise in part-time working.

The majority of companies identify the need to improve operational flexibility as the main reason for opting for part-timers, while the changing demands of workers and cost-cutting came second and third, respectively.

The bleakest outlook for overall employment is once again in Germany, where more than half its top companies anticipate shedding labour.

“The findings suggest that employment cuts across Europe are likely to continue at much the same rate as over the last 12 months,” says the report. This suggests that this recovery will fail to generate the proportion of new jobs seen in the US and Japan, a phenomenon often lamented by the European Commission.

Yet, the Commission itself comes under fire from business.

The survey asked companies whether the Commission helps, hinders, or makes no difference to them when they compete in global markets.

As many as 53&percent; of the respondents felt the Commission made no difference, while 26&percent; said it actually hindered them and just 20&percent; welcomed its help.

The biggest sceptics about the role of the Commission were to be found in Germany, the Netherlands and the UK, and the least sceptical in Italy and Spain, a result which the survey suggests could reflect the fact that both countries are net receivers of EU funds.

“If the Commission is indeed helping companies to compete globally, then most European business leaders clearly do not realise it,” concludes the report.

Asked whether the EU should aim to reduce joblessness even if this meant making industry less competitive, or increase competitiveness even if unemployment rose, firms opted for the latter by as many as two to one.

The strongest advocates for this approach were found in the UK (at 81&percent; to 15&percent;), the member state which has opted out of the social chapter in the Maastricht Treaty.

The survey, commissioned by United Parcel Service, was carried out by the Harris Research Centre, which interviewed directors, selected from Europe's top 15,000 companies by revenue, between 7 September and 20 October.