Business confidence at an all-time low

2008 has been a year of economic uncertainty, with a global economic slowdown and major crises in the financial sector. The overall business sentiment of the Eurochambres Economic Survey 2009 reflects this uncertainty, as for the first time in the history of the EES, there are more respondents who assess the overall business climate for the coming year as negative. This is in stark contrast to last year’s results, when a large majority of entrepreneurs were still confident about the prospects of their business.  
The European Commission’s Autumn 2009 economic forecasts also strongly review downwards the prospective GDP growth rate for 2008 from 2.0% to 1.4%. For 2009, an even sharper decline in GDP growth is foreseen: from a previous rate of 1.8% to a marginal 0.2%. All indicators for 2009 register a considerable decline, as entrepreneurs’ expectations were not met this year, and they adopt a much more cautious view on next year’s scenario. Besides business confidence (going down by 11.3 points), total turnover registers the sharpest drop, with a more marked decrease in domestic sales forecasts than in export sales. While investment prospects for 2009 are lower, investment will not come to a halt next year, as over half of the respondents anticipate comparable investment levels for 2009. The same applies to employment, where over 60% of respondents anticipate maintaining their work force in the coming year.

About the Survey
Eurochambres’ Economic Survey is an annual, qualitative regional survey of business expectations in Europe. The survey is implemented by the European Chambers of Commerce and Industry and co-ordinated by Eurochambres. It is based on a harmonised questionnaire sent to entrepreneurs from 25 EU Member States as well as Croatia and Turkey during Autumn 2008. Over 70,000 companies responded. Data has been aggregated at a regional level, with 95 European regions included. The 2009 survey is the sixteenth edition of this yearly report.
More detailed analysis of each of the participating countries can be found in the “National Reports” published on the Eurochambres website: www.eurochambres.eu.

Business confidence
For the first time in the history of the EES, more respondents assess the overall business climate as negative. About 40% of respondents anticipate a stable level
of business activity for 2009. Thus entrepreneurs review their assessment of overall economic development downwards, in the context of an uncertain global economic climate, yet at the same time remain optimistic about business opportunities for 2009, as all other indicators – total turnover, employment and investment - are positive, though at much lower levels than in the previous years. The situation in the major European economies varies considerably. In Italy and France, balance figures are still positive, while business confidence is negative in Germany, the UK, Spain and the Netherlands. In the latter two, over 60% of enterprises believe that the overall business development will be negative in 2009.

Total turnover
Total turnover prospects are positive despite the global downturn, although significantly lower than last year. The forecasts for 2009 are consistent with the actual economic results obtained in 2008, with most countries even showing higher turnover forecasts. The general positive trend in total turnover forecasts indicates a solid business base. Total turnover forecasts are remarkably positive across most new member states, with entrepreneurs from Romania, Poland, Cyprus, Slovakia and Slovenia citing higher-than-average positive total turnover forecasts for 2009, supported in practice by equally positive actual turnover performances in 2008. Positive total turnover forecasts for 2009 in certain countries such as Latvia and the UK show confidence despite the challenging economic climate.

Domestic sales
Decreasing domestic sales dampen business optimism. Over the past year, European businesses broadly experienced a decline in their domestic sales. The high expectations registered in 2008 failed to materialize in the real economy, with the result that a wide cross-section of European businesses expect a drop in their domestic sales. The fall in domestic sales expectations fluctuates considerably, with some countries anticipating significant drops while others, including Romania, Cyprus, Slovakia, Sweden and Slovenia, expect limited reductions.
In most countries, a clear distinction emerges between the forecasts registered for the manufacturing and services sectors. The manufacturing industry is more exposed than the services industry to the general economic slowdown in Europe, particularly the credit crunch affecting the construction and housing sectors.

Export sales
Declining export sales: reversing the trend is the challenge. Over the last year, European export sales have clearly declined as hardly any countries met the 2008 forecasts. The EU average for 2009 prospects is considerably below the forecasts registered for the previous year. The decline in export sales expectation is more pronounced in the non-Euro zone economies. The global slowdown has caused
a general decline in the demand for European goods. Furthermore, European exports to the US have been hit by the continued appreciation of the Euro vis-à-vis the dollar throughout 2008. From a European perspective, about 67% of exports of European businesses are within the EU-27. The decline in the average EU export sales is reflected in the reduction in German exports, which nonetheless still enjoy a competitive market position.

Employment
Employment grew throughout 2008. Given recent economic developments, entrepreneurs assess next year’s situation very cautiously, with a balance figure dropping to its 2002 level, yet nearly two-thirds of companies believe that they will be able to retain their labour force in 2009. It remains yet to be seen to what extent the labour markets are going to be affected by the current economic crisis. According to the Commission’s autumn forecast employment growth will be slowing down considerably in the next two years, but will not come to a standstill.
The Netherlands witnesses the sharpest decline in forecasts with a decrease of over 50 pp, followed by Spain with a 45 pp decrease. In the other larger European economies like Germany, the UK, France and Italy, over two-thirds of enterprises believe that their employment situation will be the same next year.

Investment
Last year, investment prospects were the highest in 10 years. Entrepreneurs were anticipating the trend to continue. At that time, it was too early to assess the effects of the financial crisis that started in the USA during summer 2007. Businesses
have felt the effects throughout 2008, as their expectations were not met and
the investment climate deteriorated gradually. The survey shows that investment prospects for 2009 are still positive, albeit at much lower levels than before.
Over half of the surveyed entrepreneurs anticipate their investment levels to remain constant, and one quarter anticipate higher levels.  In the Euro zone, investment prospects for 2009 stagnate, and the balance is close to zero. Non-Euro-zone companies are somewhat more positive, with a balance figure above the survey average. The two accession candidates are very positive in their forecasts.