Since the beginning of the year, mid-sized UK and European companies are increasingly confident when it comes to economic outlook. This is largely due to falling inflation, an anticipation of a loosening in monetary policy and growth returning in the first quarter.
There is still a long way to go before economic growth returns to pre-pandemic levels, but companies are bolstering their own prospects for growth in the remainder of the year.
This sentiment was captured in J.P.Morgan’s annual Business Leaders Outlook survey, published earlier this year, which showed that most business leaders from mid-sized companies in the UK, France and Germany are optimistic about the growth prospects for their national economies.
German positivity was particularly notable as 59% of business leaders surveyed said they had a positive outlook for 2024 – up five percentage points from last year and the highest percentage compared with their peers in France (51%) and the UK (43%).
Importantly, a higher percentage of executives from these countries were bullish in their outlook for the global economy compared with their domestic economy, indicating signs of a resurgence in international demand.
Yvan Schaepman, CEO of Boortmalt, a Belgium-based global malting company, says he expects international consumer demand for malt-based drinks such as beer and whisky to start to recover this year due to lower costs and prices from falling inflation.
“Our working assumption for 2024/2025 is that all of Boortmalt’s factories globally will run at 100% capacity output because we are betting we will see a strong recovery in beer consumption,” he says. “We’re starting to see some positive signs, like input costs and prices coming down, in important markets such as Europe, Brazil and Vietnam, which support this.”
Growth drivers
Sticky and still relatively high levels of inflation remain a challenge for many companies across sectors as more than two-thirds of executives from the UK, France and Germany said costs are increasing for their business. However, generally, inflation in key economies is coming under control.
As a result, this is fuelling anticipation of interest-rate cuts in the UK and eurozone, which would potentially boost economic growth and demand.
For Schaepman, he expects demand together with product premiumisation – the development and launch of premium beers and whiskies – and their diversification into the food industry to be the main growth drivers of the business in the next year.
Some of these align with the growth strategies of the surveyed business leaders, which indicated they were pursuing a mix of approaches from introducing new products and services, to prioritising their most profitable products, expanding into new international and domestic markets, and forming new strategic partnerships/investments.
Stefan Povaly, co-head of Global Corporate Banking EMEA at J.P. Morgan, says that mid-cap and larger companies are now pursuing growth plans that had been placed on hold, whether greenfield expansion, regional extension or M&A.
“European companies are keen to participate in that growth and that is why we are seeing an increased level of open-mindedness when it comes to pursuing strategic ventures that were shelved in many cases for a number of years,” he says. “In private equity, the financial sponsor space is being underpinned by more favourable financing terms, which is also stimulating activity among corporates looking to potentially divest themselves of parts of their business.”
After contracting last year, European dealmaking activity could be expected to rebound in 2024 due to greater appetite from better economic conditions.
Together with pursuing organic growth, Boortmalt’s Schaepman says they are “also very much focused on acquiring businesses”.
Financing will play a critical role in supporting any resurgence in M&A activity. Even though the cost of credit is high due to elevated interest rates, the need for bank loans and other forms of credit remains strong. More than half of the UK and European companies surveyed said they expected their need for credit to increase this year when compared with 2023.
A mix of challenges
While there is greater confidence now in pursuing growth strategies, companies are still faced with some complex threats and challenges that make achieving growth more difficult.
In the main, these include elevated interest rates, economic uncertainty, labour issues, geopolitical risk and concerns around the adoption of artificial intelligence (AI) and cybersecurity.
Schaepman says that Boortmalt is able to navigate many of these challenges because they are issues that they have needed to manage and build resilience to before. However, he adds that the biggest risk for him is a “massive cyber-attack potentially paralysing our worldwide operations.”
Increasingly, companies are having to contend with high and rising cyber-risk levels, a symptom of the advance of digitisation in the global economy.
Part of this advancement is the emergence and increasing use of AI in company operations. More than three-quarters of the UK and European business leaders surveyed by J.P. Morgan said that their companies are using or considering using AI tools.
Boortmalt is now investing in AI, too, says Schaepman, adding: “We are engaged in a few strategic AI initiatives across the company. For now, these are not so much focused on our customers than on internal enhancements, such as improving our live recipes – the way we produce our malts in our malting plants.”
“We are only at the beginning of prudently and pragmatically exploring AI. But I do think it will have an interesting impact on productivity.”
Banks have been some of the biggest investors in AI technology, exploring use cases across their operations from the back-end to the front.
“There are huge opportunities to further improve how banks digest data for our clients on the investment banking side, or how we underpin capital-market distribution and the process of raising capital,” says J.P. Morgan’s Povaly.
Outlook
While economic uncertainty and a variety of macro-risks linger, UK and European companies are increasingly confident that domestic and global growth is returning, provoking them to pivot towards a more offensive position to capitalise on this momentum shift.
Although challenges for growth remain, companies are continuing to demonstrate resilience as well as the ability to navigate through an uncertain and turbulent macro environment.
To learn more about J.P. Morgan’s annual Business Leaders Outlook survey or see the full findings from all three surveys, check out jpmorgan.com/business-leaders-outlook.