The Economy

Business Outlook Survey

Companies in Europe have weathered the credit storm so far, but defences are starting to crack.
Jason KaraianApril 7, 2008

It may not be a recession, but it’s awfully close. That’s how finance chiefs in Europe describe what’s going on at home, according to our latest survey of senior finance executives. More than 1,000 finance chiefs worldwide participated in this quarter’s poll, conducted in conjunction with Tilburg University in the Netherlands and Duke University in the US.

When it comes to confidence in Europe’s economy, pessimists outnumber optimists by six to one. Only 10% of finance chiefs in Europe are more optimistic about economic prospects than they were the previous quarter, down from nearly 50% this time last year. Still, only 12% of CFOs think that their countries are in recession.

Expectations for earnings and capital spending remain positive, though lower than in previous quarters. But as the economic news turns negative and credit market turmoil rumbles on, CFOs are steadily losing confidence in their own companies, with the share of optimists (34%) in financial prospects only slightly greater than the share of pessimists (32%).

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José Portabella, CFO of Barcelona-based business process outsourcing firm Accelya, describes his outlook as growing “much more pessimistic” in recent months. “The news gets worse and worse,” he says. A downturn in the construction sector in Spain has put the domestic market on edge. Spain is also heavily reliant on tourism, so the fate of consumer confidence is high on Portabella’s list of concerns. Accelya processes more than half of the invoices between travel agents and airlines that belong to the International Air Transport Association. “If tourism falls, we suffer,” the finance chief says.

For now, Portabella says that his company “can survive without massive cost-cutting.” Investments in an upgrade of the group’s IT platform will go ahead. On other matters, the company is in “wait-and-see mode,” according to the CFO.

Portabella and his peers in Europe can take some solace that conditions in Europe aren’t as bad as they are in the US, where CFOs are in a deeply gloomy mood. In America, pessimists outnumber optimists by a nine-to-one margin, with a feeble optimism reading setting an all-time low. More than half of finance chiefs say that the US economy is currently in recession.

Daniel Gros, director of the Brussels-based think tank CEPS, reckons that the eurozone will “decouple” from the US economy sufficiently “to avoid a technical recession.” This, however, is a mixed blessing. “Having a more sluggish economy has its advantages during bad times,” he notes. “The bad news is that any recovery might also be much slower starting in Europe.”