Future of Europe 2018

Europe – a region in resurgence

European businesses have a spring in their step. Data from our International Business Report (IBR) finds that business optimism across the EU sits at net 60%[1] in the first quarter of 2018. This is the highest optimism figure recorded in Europe in over a decade of IBR research.

This palpable sense of confidence is evident in expectations and activity. Net 57% of EU firms expect revenues to increase in the following 12 months. This is another record high. Plans to boost investment in new buildings, plant & machinery and research & development are also up.

But will this resurgence of optimism it last? History tells us that growth tends to come in cycles and there may be change afoot. Eurozone GDP growth slowed to 0.4% in the first quarter of 2018, down from 0.7% the previous quarter.

The challenge for businesses will be navigating political, social and technological challenges, while also making the most of the current economic stability to invest in future growth. Businesses who manage this successfully will be best placed to succeed if and when economic conditions change.

Europe resilient as political landscape evolves

European business optimism is contributing to a sense of resilience in the face of powerful political forces such as Brexit and EU integration. But the rise of populism is a concern, which businesses cannot ignore when forming business plans for the coming years.

Brexit concerns are subdued

With less than twelve months to go until the UK leaves the EU, the exact nature of the future Britain-EU relationship remains uncertain. With a transition period likely, even the exact ‘departure’ date is open to questions. But firms are taking it in their stride.

A sizeable proportion of Eurozone businesses believe that the membership structure of the EU will change post-Brexit. Nearly half (43%) believe it will lead to a two-tier EU membership model. But only 5% think it will lead to the EU being dissolved. One in four (26%) believe Brexit will have no impact on the EU.

A similar outlook is evident in the UK. Recent research by Grant Thornton UK found that only 22% of British firms identified Brexit strategy as one of their top five barriers to growth. And nearly half (47%) of those who said it was a top five barrier said they could overcome it.

Appetite for integration remains strong

Despite the UK’s imminent departure from the EU, for European businesses, integration remains firmly on the agenda too. Across the Eurozone 65% of businesses would like to see further EU economic integration, up from 63% last year. However, just 35% want further political integration. This down from 44% last year. Germany is the only country where more than half of business leaders (63%) want to see further political integration.

Flexibility is key

European businesses are united and resilient. However, nationalism looks set to remain a force in European politics. Likewise, Brexit will reshape the continent politically and legally. Therefore, businesses will need flexibility in their planning to accommodate for a range of scenarios in the coming years.

No firm wants to find itself losing market share, or market access, because it underestimated the impact of Brexit or a change in government policy. Establishing or growing a presence in markets outside Europe may be a sensible strategy for firms looking to mitigate potential risks from future instability closer to home.

Europe keeping pace in global technology investment stakes

Technological innovation is transforming how businesses plan and invest. Evidence shows that European businesses fare well on investing in technology (Infographic on technology investment in the European Union (PDF) [ 1839 kb ]) - compared to peers around the world. With competition intense, firms must balance thorough due diligence with staying ahead of the curve in order to invest successfully.

We know that technology will change the way we live and work forever. But our familiarity with that knowledge does not dampen its power.

European businesses recognise that investment in technology and investment in future growth are synonymous. But they are not the only ones.

Against this backdrop, data from the Grant Thornton International Business Report suggests that European businesses are keeping pace in the technology stakes. Net 42% of EU firms plan to increase investment in technology over the next 12 months in Q1 2018. This is up from net 38% in the previous quarter.

The types of technology available, and their applications, are vast. But one of the fastest growing areas of opportunity for businesses lies in Blockchain. We see Blockchain being used to make significant efficiency improvements to invoicing processes. Or, to bring together multiple supply chain parties’ data in a digital platform that offers a way to track and verify activity.

Elsewhere, technology helps tax functions operate more smoothly. If tax functions become more automated, it can free up individuals previously in those roles to play a more central role in advising on and influencing business strategy.

Understand technology – and the rules – properly

Additionally, new European regulation is an important consideration. General Data Protection Regulation (GDPR), the European Union’s new data law, comes into effect this May. Businesses must ensure customer data privacy complies with the new rules.

This regulation will affect social media platforms, cloud computing, geolocation services and other technologies your business may use. It will also affect companies that use technology platforms to sell and distribute their products and services. Customers of these companies will expect assurances on data security.

Our research shows that businesses around the world, not just in Europe, see the importance of investing in new technologies. European firms, therefore, must strike a fine balance. Avoid a gold rush mentality and invest without proper planning. But don’t fall back from the pack and lose out to competitors.