European businesses cautiously optimistic about economic future

“Despite the numerous headwinds, BusinessEurope so far remains cautiously optimistic and sees no risk of a recession on this side of the Atlantic,” the umbrella organization of European business federations said in its spring economic outlook, which was based on a survey of its members.

The report said European businesses continued to expect EU economic growth to average 2% this year with a further decline in the unemployment rate to 6.8%, roughly in line with an earlier forecast made by the European Commission. The optimism came from the fact that higher-than-expected growth over the last two years provided a good basis for the EU to face present challenges. At around 3% over the last two years, growth in the EU has been robust by historical standards and stronger than in the United States.

Meanwhile, EU labor markets have improved substantially and corporate balance sheets rest on sound foundations despite an expected fall in profitability in the near term. Externally, European exports are bolstered by robust demand from emerging as well as oil-producing economies and should grow on average by close to 5% this year, offsetting weaker demand from the US.

Although European companies are significantly affected by rising oil and commodity prices, but a strong euro and higher energy efficiency attenuate their exposure compared with global competitors. High household savings, a less overstretched housing market and a less exposed banking sector make the European economy less vulnerable to the present financial market turmoil than the US. BusinessEurope expected the economic growth in the euro zone to stand at 1.7% this year. In 2009, it expected growth to stabilize, averaging 2.1% in the EU and 1.8% in the euro zone. However, the report acknowledged that downside risks to the scenario largely dominate in the context of the unresolved credit market crisis. Besides growing evidence of a sharp US slowdown, protracted financial market turmoil, rising commodity prices and a weakening dollar, the report said European companies also face home-grown dangers, notably high inflation.

BusinessEurope said the business community broadly endorsed the European Central Bank monetary policy to date and in particular its handling of the financial market crisis, urging EU governments to remain committed to fiscal discipline at the current difficulties. It called for responsible wage demands by trade unions in order to avoid second-round effects of inflation. “At present it is essential that inflation returns to levels consistent with price stability,” the report said. In an effort to fight inflation, the ECB left its benchmark interest rate unchanged for months despite the need to stimulate a slowing economy with rate cut.

BusinessEurope also said the EU must continue to forcefully engage its global partners to ensure sustainable exchange rate patterns and to avoid further deepening of the credit market crisis. “European companies are resilient and they continue to invest, export and create jobs despite all the uncertainties. We now count on governments to create the right conditions that will support this confidence and hence growth in the years ahead,” said Philippe de Buck, Secretary General of BusinessEurope.

The European Commission was scheduled to release a new economic forecast next week, with further cut down of growth expected. (people.com.cn)