European Executives Fear Global Impact of Eurozone Instability

Two-thirds of European business executives worry that instability in the eurozone will pose the most significant risk to the global economy in the next six months, according to a new survey by the Economist Intelligence Unit (EIU).

Eurozone instability is a far greater concern to executives than other risk factors. A double-dip recession was seen as a concern by just 10% of respondents, followed by social and labour unrest, (6%), Middle East unrest, rising oil prices and interest rates, and financial market regulation (all 4%).

“When we surveyed these executives one year ago, eurozone instability was barely on their risk radar – only 5% rated potential break-up of the eurozone as a concern, even though the Greek economy was already in meltdown,” said Iain Scott, a managing editor at the EIU. “What might once have seemed like Europe’s problem is now very much viewed as a global concern. Eurozone instability is now also the biggest worry for executives in the Asia-Pacific region, and even in the US.”

The EOU’s own risk forecast points out that the economic crisis has exposed serious weaknesses in the eurozone. Eurozone break-up is a relatively low probability, but if it occurred it would be hugely destabilising for the global economy – banks would be severely shaken and the US dollar would shoot up, choking US recovery and even affecting China, whose currency is tied to the US dollar.

In the survey, few respondents – even in the US – indicated that they saw the US government’s 2 August debt ceiling deadline as a cause for worry. The EIU forecasts that a US dollar crash emanating from concerns about the country’s massive fiscal deficit, which could prompt investors to avoid the dollar, is a low probability.

Asked about risks to their own business in the coming six months, almost one-half of European respondents (48%) worry about economic and market risks, 25% weak demand for their products and services, and 17% currency volatility. A large number (22%) see political risks as having an adverse impact, far more than the 5% who saw that as a risk in 2010.

Only 13% of European executives are concerned that that inflation will dent their business in the next six months; by contrast, the figure is 31% for Asia-Pacific respondents. The same number (13%) of European respondents say that they are concerned about a skills shortage affecting their business. That finding, which is similar to the 2010 figure, suggests that companies are looking to grow their business as they emerge from the downturn.

The global economy continues to slow, in response to shocks such as the price of oil and the fallout from the Japanese tsunami, but the EIU believes that this is still a ‘soft patch’ rather than a slide back towards recession.


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