1 in 2 European businesses abandon growth as high inflation begins to bite: Intrum

USA - English

News provided by

May 23, 2023, 01:29 ET

Over half (51 per cent) of businesses see inflation restricting their ability to grow and seize new opportunities
Six in 10 say that high inflation (59 per cent) and rising interest rates (57 per cent) will hit revenues and impact customers' ability to paying on time and in full
Almost nine in 10 (85 per cent) of employees have already asked or are expected to ask for a pay rise in the next 12 months

STOCKHOLM, May 23, 2023 /PRNewswire/ -- More than half (53 per cent) of businesses across Europe have shifted their focus away from growth and towards cost cutting, in response to rising inflation and interest rates, according to the annual European Payment Report from credit management services provider Intrum.

The 26^th edition of Intrum's study features the opinions of more than 10,000 companies across 29 European countries and sheds light on the intricate challenges that European businesses are grappling with in the face of sombre economic conditions.

Economic headwinds curtail business growth
With 68 per cent of businesses anticipating high levels of inflation rates will last for at least another year, many are pivoting from growth plans to cost cutting strategies to weather the economic storm.

More than half (56 per cent) of businesses are becoming more cautious with their borrowing and spending plans as they navigate rising lending costs, still complex supply chain issues and a competitive labour market.

By sector, Energy and Utilities are exercising the greatest caution, with 60 per cent of businesses within this practice becoming more mindful of costs, resultantly reducing spending and borrowing. Conversely, the Insurance sector (50 per cent) has shown the least caution but in half of cases is having to make difficult decisions to stay out of the red.

Across the countries, the UK and Austria are the most cautious with three in five businesses (63 per cent) halting spending, closely followed by Spain and Germany (61 per cent).

Chart 1: Percentage of European businesses expecting interest rates to continue rising and becoming more cautious with their borrowing and spending plans:

The risk is that, as businesses rein in their spending, the economy will continue to slow without affecting the upward pressure on prices. In terms of what this means for growth, 51 per cent of all businesses across Europe see inflation as restricting their ability to grow their businesses and seize new opportunities.

Chart 2: European businesses outlook on the economy (agree):

Employees seek more from employers to tackle higher cost of living
While businesses look to cut costs, their employees are also facing with rising costs as end consumers, pushing them to demand higher wages that rise in line with inflation. This reality however is causing a headache for businesses that are already under pressure, 53 per cent of businesses across Europe admit that they are worried about meeting their employees demands for higher wages.

Across Europe, more than eight in 10 (85 per cent) of employees have asked or are expected to ask their employer for a higher-than-average pay rise this year. In the UK and Finland, this figure stands at 91%.

In instances where a pay rise isn't possible, there is a risk that businesses will see an increase in job dissatisfaction, a fall in productivity and disengagement from employees. The ultimate risk to businesses is employees leaving the business, which could cost more in the long-term to recruit and upskill new employees.

Chart 3: Proportions of businesses whose employees have asked for pay-rises

"Across the board, businesses are grappling with high inflation, increasing interest rates and a cost-of-living crisis. This has led them to prioritise cost cutting and divert from investing in growth and innovation," said Anna Zabrodzka-Averianov, Senior Economist at Intrum.

"This has significant long-term implications both for businesses and the broader economy across Europe as inward investment is curtailed and innovation becomes a second priority. Businesses also can't rely on passing extra costs onto consumers, who are also having to navigate difficult times financially. When competition is rife, upsetting customers and damaging their loyalty could be a difficult pill to swallow and one that businesses can't come back from.

"Going forward, businesses must not lose sight of growth as this will help long term recovery and ensure businesses come out the other side stronger."

About the European Payment Report 2023
The European Payment Report 2023 is an instrument for gaining insight into the challenges and opportunities businesses across Europe and a number of sectors are facing. The report is based on an external survey conducted by FT Longitude in 29 countries in Europe. In total, 10, 556 small, medium, and large companies across 15 industry sectors participated in the research. Respondents were CFOs or other senior persons with financial knowledge of the company they work for and the companies have been selected randomly from a B2B database. The fieldwork for the study was conducted between November 2022 and March 2023.

The full report is available via the following link https://www.intrum.com/epr2023/

For further information, please contact:
Kristin Andersson, Global Media Relations & Public Affairs
+46 70 585 78 18
[email protected]