Economics, EU – Baltic States, Markets and Companies, Society

Having recorded the highest level of confidence of any region in the world for the previous three quarters, the EU now trails behind the global index of 59.7.  

The decline in confidence across the EU was primarily caused by a sharp drop in economic confidence in the United Kingdom. Following the unexpected referendum vote to leave the EU, the YPO Global Pulse Index for the United Kingdom reported a drop in confidence of 5.0 points to 57.9, the lowest level since first quarter 2013.

Beyond the United Kingdom, there were variations in confidence levels among the business leaders and chief executives across major EU economies. Confidence in Germany fell 3.8 points to 55.5, its lowest level since third quarter 2014. However, confidence held steady in Italy, edging up 0.3 point to 63.4, while Spain climbed 1.8 points to land at 64.3. France gained 2.6 points to reach 58.7, its highest level for more than a year.

Taken as a whole, the European Union bucked the global trend, with most regions in the world recording a modest increase in optimism in the second quarter. Worldwide, the YPO Global Pulse Index for the second quarter of 2016 rose 1.4 points to 59.7, its highest level for a year. Asia gained 2.9 points to land at 62.9, making it the most confident region in the world. The United States rose 1.2 points to 60.8. Latin America climbed 3.6 points to 54.4 while the Middle East and North Africa region remained almost unchanged, edging up 0.3 point to 55.9. Africa increased 0.6 point to 53.8, remaining the world's most pessimistic region.

"It's of little surprise that business confidence has taken a hit following the Brexit decision and mounting concerns about financial instability within many European economies. This uncertainty is likely to continue throughout the rest of this year, as negotiations on the terms of the United Kingdom's withdrawal from the EU get underway and fears persist about potential recession in several major economies," said Erik Lorenz Petersen, YPO European regional chair from Denmark. "However, at 58.5, it should be noted that EU confidence remains relatively strong across the region, and the immediate economic impact of Brexit may not be as catastrophic as many business leaders feared in the days after the referendum. CEOs still believe there are opportunities for growth and success despite the current turbulence."

Key findings in the EU

Concerns over short-term economic conditions

When assessing the economy six months from now, business leaders in the EU reported reduced levels of optimism.

More than a quarter (29%) of CEOs predicted that business and economic conditions would deteriorate over the next six months, against one-third (34%) who predicted an improvement. In the previous quarter, only 22% forecasted a worsening in conditions while 35% anticipated an improvement.

CEOs remain optimistic about prospects for their own organisations

Despite a less optimistic outlook about the general economic climate, most business leaders remained relatively positive about the prospects for their own organisations. Nearly 59% of CEOs expected to increase sales in the next 12 months, versus only 10% who expected a decline. One-third of business leaders expected to increase headcount within their organisations, with only 8% expecting to reduce staff numbers. More than one-third of YPO members (35%) in the EU expected to increase fixed investment in the year ahead, versus 12% who expected to cut fixed investment levels.

Sharp drop in confidence among British business leaders

Unsurprisingly, confidence amongst chief executives and business leaders in the United Kingdom fell significantly as a result of the referendum decision. Half of CEOs said that current business conditions were worse than six months prior, and the same proportion (49%) expected conditions to deteriorate further over the next six months. This was a far more pessimistic outlook than in the previous quarter's survey, when only 28% reported worse conditions than six months prior, and only 26% expected the economic landscape to deteriorate in the six months ahead.

YPO Global Pulse Confidence Index

The quarterly electronic survey, conducted in the first two weeks of July 2016, gathered answers from 2,389 chief executive officers across the globe, including 238 in the European Union. Visit www.ypo.org/globalpulse for more information about the survey methodology and results from around the world.