Inflation, recession, deindustrialisation: The European entrepreneurs’ priorities for 2023

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Inflation, recession, deindustrialisation: The European entrepreneurs’ priorities for 2023

November 25, 2022 – Stockholm. BusinessEurope President Fredrik Persson declared: “European companies urgently need emergency measures on energy and regulatory breathing space. The current crisis is dramatically exacerbating the risks of Europe’s deindustrialisation.”  Indeed, the increasing price of energy drives companies to close plants. For instance, ArcelorMittal, a French steel manufacturing corporation, closed blast furnaces in Spain, Germany and France as a result of reduced orders. Higher energy prices mean more expensive end products, which in turn leads to a drop in orders. This is called the snowball effect.

As a consequence, many companies are planning to relocate. Insofar, as the United States of America do not experience the energy crisis in the same way than the European continent, energy prices are lower. Moreover, the Inflation Reduction Act adopted on August 12, 2022, takes a toll on the competitiveness of European companies. Indeed, it is mentioned in the guidebook that “the Administration will work to ensure that investments under the Inflation Reduction Act facilitate state and local contracting opportunities for underserved small businesses”. Compagnies that produce in the US could thus obtain tax provisions, grants and loans, the EU fears therefore a “subsidy race”.

What are the risks?

Eurochambers, the association of European chambers of commerce and industry, pointed out that “there is a real risk that companies, especially in energy-intensive industries, will relocate permanently outside Europe, which would lead to a loss of competitiveness and undermine the objectives of European strategic autonomy”, in the 2023 Eurochambers economic survey (EES). Moreover, “European economies […] will have to deal with a contraction of production levels due to increasing operational costs”, so that the risk of recession for 2023 is extremely likely.

However, relocating European companies and slowing down industrial production leads to unemployment. The survey highlights that “temporary supportive measures put in place over the last two years allowed businesses to avoid the downsizing of their workforce, but this appears not to be sustainable for 2023, as ‘companies absorb the impact of an economic recession and inflationary pressure of salaries’”.

Thus, “European companies will likely put on hold planned investments and prioritise the need for savings”. In fact, businesses do not invest because the industrial production is slowing down compared with the pre-pandemic situation, export sales are dropping, and securing a loan has become more difficult. Eurochambers concludes that “this is an alarming signal for the post-pandemic recovery, hampering the path towards a more digital and greener Europe”.

What are the solutions?

In order to mitigate the effects of the “triple blow caused by the pandemic, the energy crisis and the ongoing war in Ukraine”, Eurochambers collected feedback from 47,000 European entrepreneurs. First, they stressed the necessity to have access to an affordable energy. To this end, measures should be taken to help businesses and households, such as “increasing the ceiling for state aids to support energy-intensive companies”, “fiscal relief measures” to prevent surging prices, and easing loan conditions. Furthermore, Fredrik Persson stated that “to mitigate skyrocketing energy prices [it is urgent to consider] a temporary decoupling of electricity prices from gas prices”.

Secondly, as entrepreneurs’ second challenge is the lack of skilled workers, 2023 has been designated as the European Year of skills. Hence, as the labour market evolves, school programmes must follow. Besides, according to the results of the survey, “the need in Europe for migrants may increase as a response to projected labour and skill shortages”, which is why the procedure to enter the labour market could be simplified, and tools could be used by employers to select talents “such as the EU Talent Pool”, a tool used to help Russian and Ukrainian refugees to find a job.

Thirdly, entrepreneurs emphasise the need to reduce the administrative burden related to “compliance and reporting costs”, but also to the “access to affordable and reliable renewable energy”, or to the “plans to introduce mandatory corporate due diligence at EU level”. The single market and the four freedoms give start-ups and SMEs the opportunity to innovate, create value, partner, sell throughout the continent, so that “the single market is a crucial tool in Europe’s recovery”. However, problems remain with the disruption of the supply chain and the access to raw materials, which are crucial for the economic stability and the twin transition. Therefore “securing access to raw materials must be a focus of EU trade negotiations with third Countries”.

Sources:

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