Business sentiment across European markets among small- and mid-sized companies is significantly improving, owing to continually strengthening economic conditions and confidence for 2014 prospects, according to a report released today by GE Capital.
The 2014 European SME Capex Barometer report shows that overall confidence levels hit 33 percent for the first quarter of 2014 compared to 15 percent during the same quarter last year. The UK logged the top confidence numbers with 54 percent—a 21 percent increase from last year. Confidence levels increased across all seven markets surveyed, which included the UK, Germany, France, Poland, Czech Republic, Hungary, and Italy. The survey is based on interviews with more than 2,250 small and mid-size business leaders.
“The economic recovery in Europe is gaining traction and we are encouraged to see many markets feeling more positive about their future growth prospects,” said Maurice Benisty, chief commercial officer of GE Capital International. “We are now looking to see this optimism translate into increasing business investment which will help fuel further growth.”
Although confidence is increasing across the board, the total planned investment of €410 billion over the next year dropped slightly from last year’s figure of €418 billion. Meanwhile, firms say they plan on adding 2.4 million new jobs, matching 2013 estimates.
As economies stabilize, economic uncertainty appears to have evaporated as a major obstacle to investment, with only 29 percent of those surveyed indicating this was an issue compared to about 43 percent last year. And 16 percent of firms reported having “no restrictions” on their capital spending, saying they were able to invest as they wish.
German confidence levels (45 percent) held steady, which the report said wasn’t surprising as the country’s businesses have traditionally showed more optimism in previous versions of the report, possibly owing to the speed with which the country has been “able to normalize its economy post-financial crisis, relative to other European markets.”
The biggest surprise in the report were French companies, which showed big increases in confidence (23 percent compared to 4 percent last year) and planned investments of €90 billion, up 41 percent from last year, over the next 12 months. The report attributes these increases to a stabilizing economy and increased manufacturing output.
While confidence is up across all markets, planned capital spending is mixed, the report said. In both the UK and France capital spending is expected to rise; however, these are offset by significant reductions in expected spending by Germany and Italy. Germany still leads all others in expected capital spending with €136 billion; German firms noted that their main obstacle to investing was due to having already invested or upgraded their equipment in previous years.
Poland’s expected capital spending of €31 billion is up 33 percent over last year and plans to spend more per business (€119,000) than any other country. Those numbers reflect strengthening macro conditions, the report said, with Poland expected to post the fastest growth this year among Eastern European markets. Falling unemployment and slow inflation is fuelling domestic demand, according to the latest estimates from the European Commission.
Firms plan to spend most on manufacturing equipment—€184 billion—which is a drop from last year’s investment of €192 billion. However, spending on IT and software are set to increase, the report said.
The biggest driver of investment for Western European markets was to enhance productivity, while deterioration of existing equipment was cited as primary spending driver by Central and Eastern European firms.
The report estimates that firms have lost income of €63.3 billion due to dated or inefficient equipment. But it’s a nuanced picture. While Western European companies reported a 13 percent increase in lost income compared to last year, CEE markets reported a 25 percent drop in missed income. French and German firms reported the biggest increases in estimated losses, which drove up the total figure.
And to finance all this spending, the report found that companies would prefer to go at it alone, pulling from funds on hand rather than procure outside financing. Leasing options were the second preferred option for Western European firms, while CEE firms preferred financing from the EU, suggesting these companies “are more open to looking for alternative forms of financing,” the report said.