Richard Carter, CEO for Europe & Asia at Bibby Financial Services, discusses growing optimism in Europe and the future for SMEs in 2018.
In 2018 we could see a new dawn for SMEs in Europe, with an air of growing optimism. In December 2016 the European Central Bank predicted a conservative but respectable GDP growth target of 1.7% for 2017. In reality though, the engines of Europe roared at full throttle to deliver GDP growth of 2.5% – its fastest pace in 10 years. This sentiment was further strengthened with the final Purchasing Managers’ Index of 2017 which saw the index rise to 58.1, the highest level since February 2011.
Despite the ongoing debate surrounding Brexit, the outlook is looking strong for the Single Market with stellar growth in 2017, renewed optimism and signals of further reforms to boost business in 2018.
But what does the picture look like for SMEs and the opportunities on the horizon?
Beyond the numbers
In 2017, fears of political upheaval failed to materialise, in turn calming markets and providing a strong platform for business growth in 2018. There is no hiding the fact that optimism in the Eurozone has been boosted by the election of President Macron in France. Since his election in May 2017, President Macron has delivered a number of business friendly reforms at home, most notably in the labour markets. In September, Macron’s government unveiled a two year plan to make entrepreneurship easier by easing the burden on businesses with tax cuts for 6.6 million self-employed workers while also reducing red tape.
And such reforms appear to be paying dividends. In January, it was announced that Facebook, Google and software company, SAP, had all unveiled significant investments in France.
Looking more widely at the EU, in September 2017 Macron outlined his vision for the future of the bloc, where he called for the development of an economic “sovereign” powerhouse that is able to compete with China and the US. It is likely that Macron finds a supporter of such reforms in German Chancellor Merkel, who will be thinking about legacy as she enters her final term, assuming that a grand coalition can be negotiated at home.
Elsewhere in Europe, there are other positive signs. Despite political earthquakes at the end of 2017, Spain continues to improve, having created over 600,000 jobs in 2017.
Meanwhile in Ireland, figures released in the final quarter of the year pointed towards a 10.5% increase in GDP in the 12 months to September. Phenomenal growth that signals the continued revival of the Celtic Tiger – something we are absolutely seeing in BFS Ireland.
Is it all boom?
While the outlook for 2018 is optimistic, it is not necessarily a smooth road ahead, nor a guarantee. The Euro has kicked off 2018 as it left 2017 with strong performance against the dollar, which is good news for SMEs importing, but does make the exporting environment outside of the Eurozone more challenging.
Inflation is another area that the ECB is watching closely. The return of inflation is likely to be slow as it creeps towards the 2% goal by 2020, with wage growth needed to push underlying price pressures. This will be an area that SMEs will need to watch closely after record low inflation lasting a number of years.
Opportunities on the horizon
It is clear that the European economy is well set for 2018, presenting opportunities for SMEs. With manufacturing orders at almost record highs and the furnaces of industry glowing, expansion and investment should be a priority for many SMEs. Making the right investments in new equipment, products and people will allow businesses to thrive.
To make these investments, businesses need to consider their cashflow position and whether they have the right funding in place. Our Global Business Monitor report for 2017 found that a significant proportion of SMEs are still declined for funding through traditional means. However, making use of assets such as unpaid invoices, stock or even leasing new equipment will make these investments much more achievable by unlocking capital tied-up elsewhere.
Now is the time for SMEs to put themselves on the front foot and meet their growth aspirations in 2018 while the sun continues to shine on Europe.