what European companies expect from the economy in the coming months

The European Central Bank (ECB) has published the results of consultations with large non-financial companies in the euro area, whose management has detailed its short-term expectations for the EU economy in the coming months. The risks of a recession at the turn of 2023 and 2024 are considered by all to be very high. In industry, construction and the sector of intermediate goods are considered to be the most problematic, sectors associated with decarbonization are growing. Companies note the transfer of household spending from goods to services, the growing demand for travel, entertainment and digital services, stability in retail. The decline in price pressure, according to EU companies, continues, although wage growth in 2024 will not stop.

A survey by ECB economists of the management and representatives of 73 largest non-financial companies operating in the euro area is a rather rare type of information published by the regulator (the last time the ECB published “dialogue with the non-financial sector” data as part of its communication in January 2021, when the results of the COVID-19 pandemic were discussed). 19 for business). The survey aims to provide the regulator with information about what may be behind the aggregated figures of surveys of general and sectoral business activity, sentiment, demand, expectations, as well as information about how the largest players in the non-financial sector themselves consider current economic statistics and regulators’ forecasts.

These are exclusively qualitative estimates, although for two indicators – business activity and price expectations – the ECB publishes index estimates: the third quarter, according to the survey, in the euro area, respondents expected (the survey was conducted June 26-July 7) a little more lively in business activity , while price pressures, which peaked in the first quarter of 2022 and have been steadily declining since then, have continued to decline.

Companies in the ECB survey do not see fundamental changes in the situation since the beginning of 2023: everything that happens is the consequences of pandemic and military shocks, as well as long-term structural changes (decarbonization and digitalization), all of which affect both the supply side and the demand side, new factors are not found. In industry, the greatest weakness is found in the construction sector – both in industrial and residential real estate – and the production of intermediate goods, including in the chemical, steel, packaging and paper, electronic industries. Demand in the sectors of industrial machinery and equipment is assessed as frankly weak. At the same time, many manufacturers of equipment, including those related to the “decarbonization industry” and its infrastructure, have order books formed for years to come. The automotive industry is assessed as improving, with traditional car manufacturers in the euro area rated as more resilient compared to electric vehicle manufacturers.

The general trend noted by many companies surveyed by the ECB is the shift in spending from goods to services (the reason is the post-pandemic increase in food and energy spending), while there is a strong demand in services in the travel and leisure industry, stability in retail (the process of shifting consumption to non-food products to more expensive, up to luxury, product groups), the growth of digital services. On the contrary, the demand for logistics and transport is falling.

The problem of inflation, based on the polls of the ECB, is considered by companies de facto solved, they believe that the price pressure in the zone is under control. At the same time, companies are also of little concern about wage growth: they assume that wage growth in the EU in 2024 will be less than in 2023 (about 5.5% is expected), or the same. Also, companies have de facto resigned themselves to the reduction of working hours that the labor market offers them on the side of the hiring – it is assumed that this is a long process of changing the balance of work and leisure in culture, which in itself does not carry risks. On the contrary, the threat of a recession in the EU countries is considered the highest and real risk in the coming months – companies are waiting for it in the euro area at the turn of 2023 and 2024, assuming, however, that it will be quite soft.

Dmitry Butrin