European business

European business, Overcoming uncertainty, strengthening recovery, outlines results from a survey of 2,000 C-suite executives conducted by the McKinsey Global Institute in France, Germany, Italy, Poland, Spain, and the United Kingdom. It highlights leaders’ newfound optimism about the outlook both for European economic growth and for their own companies’ prospects. They expect revenue growth of 2.1 percent on average in the coming year, with about one in five companies—especially larger, more internationally focused ones—predicting revenue growth above 5 percent. Business leaders are also upbeat about some key global trends affecting business everywhere, including digitization and the rise of emerging economies.

Along with the European business leaders, we also surveyed executives at more than 400 US and Chinese companies with operations in Europe. Their expectations for GDP growth in the European Union were even higher than that of their European counterparts on average—almost 3 percent and 2.3 percent, respectively.

The survey nonetheless indicates a continuing reluctance among European firms to invest, with many hoarding cash (Exhibit 1). Gross corporate savings rose to almost €2 trillion in 2015, and companies are divided between those saying they are saving to fund future investments (48 percent) and those building reserves for future crises (47 percent). Yet most businesses believe they already invest at the right level and see sufficient opportunity to invest more; weak demand, lack of opportunities, and access to finance no longer feature highly as barriers to investment.

How to explain this investment behavior? European business leaders cite a range of risks and uncertainties, including concern about future crises, nervousness about rising populism and anti-globalization sentiment, and lingering fears about the future shape and direction of the European Union (EU) itself.

We delved more deeply into attitudes toward the EU, asking about the benefits companies had experienced in the past, as well as their hopes and expectations for Europe in the future. These are complicated times for the European Union, which has had to contend with growing political and economic divergence, including the decision by the United Kingdom to withdraw from the EU altogether.

Overall, the response to our questions on the EU was positive. Just over half the companies surveyed think the EU has had a beneficial effect on their business, and the most successful companies are the most positive. Moreover, some 60 percent of business respondents say they want “more Europe,” in the form of greater policy convergence and integration.