But new year offers new hope

Despite a glimmer of optimism, mid-sized companies in the European Union are still feeling the pain of the global pandemic as case numbers continue to rise. But, though the immediate outlook in the region remains muted, EU businesses are beginning to look toward the future and plan for a recovery, according to Grant Thornton’s Global business pulse.

In H1 2020, the business health of mid-sized companies in the region fell to levels only seen during the Eurozone sovereign debt crisis. And firms haven’t fared much better over the past six months. The overall index score for the EU comes in at -6 for H2 2020, rising by six points since the first half.

Overall business health has seen a slight boost across all countries surveyed except for France. Sweden, Ireland and Greece are the only EU nations to have returned to positive territory. According to the OECD, Europe’s contribution to overall global growth will be below par in 2021 and is set to remain smaller than their weight in the world economy.[i] Indeed, despite a rise, the EU’s overall index score remains below global levels.

The most recent index provides a valuable snapshot of business health amid a challenging environment in which covid-19 dominates the agenda, vaccines are announced and where firms look to the year ahead. The results are based on interviews with around 5,000 mid-market leaders between October and December 2020.[ii]

Larissa Keijzer.pngThe poor outlook in the region doesn’t come as a surprise for Larissa Keijzer, Regional Head – EMEA at Grant Thornton International Ltd. “Europe has so many uncertainties. It isn’t just the Coronavirus that businesses are worried about. They are concerned about Brexit and cohesion within the European Union. There is also no real clarity or regulation around how countries can apply for EU aid as a result of the pandemic.” Indeed, despite the recent Brexit deal, on crucial factors including trading relationships and free movement.

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Coordinated vaccine approach needed to restore healthy outlook

These concerns can be tracked across the two key elements of business health that make up the index: the ‘outlook’, which tracks growth expectations, and the ‘restrictions’, which measures barriers to growth. The outlook remains muted, with a rise of just six points in H2. Currently, only a third of firms (34%) in the region expect to increase their revenues over the next 12 months, 14 percentage points lower than pre-pandemic levels recorded at the end of 2019. And only 29% expect to increase profits, a low score compared to the other regions surveyed.

Restrictions remain elevated at -44.9, with a slight overall improvement of five points. Businesses continue to express concern about constraints to doing business over the next 12 months, with 55% expecting high levels of economic uncertainty. More than a third of firms (34%) are also concerned about a potential shortage of finance.

Once again, there are stark differences across countries. “In Sweden, we see much lower business restrictions because this is the only country that tried to create immunity by avoiding lockdown,” Larissa explains. “Time will tell if this approach will pay off, but certainly, in those countries with rising case numbers and severe lockdowns it’s hard for businesses to see light at the end of the tunnel. And to add to this, in many cases, measures taken by governments do not make up for the losses suffered by businesses, especially retailers with surplus stock.”

Though vaccination programmes are now being rolled out across the region, Larissa explains that the current approach lacks coordination, with countries like Germany independently purchasing additional doses. “Optimism in the region will largely be driven by firms seeing an end to the pandemic. Businesses are keen to see the EU mobilise fully around a vaccine.”

Companies look past Covid-19 to prioritise investment

In H1 2020, investment intentions were on a downward trajectory for EU businesses. But research and development (R&D) and technology remained high on the agenda compared with other investment categories, with some 70% of companies planning to increase or maintain their investment in tech.

This number hasn’t faltered in H2, with 72% of firms now prioritizing this area. In fact, investment intentions are rising across the board, with increased drive also seen in more traditional investment categories such as plant and machinery, staff, and new buildings.

“Mid-market businesses have certainly suffered in 2020, but there is a shift happening”, says Larissa. “The second wave of Coronavirus after the summer, and of course Brexit, are keeping businesses cautious. But we are seeing a shift towards a longer-term view, and we will see this take hold once the dust settles. Businesses are now a lot more focused on futureproofing through investment.”

Export expectations, while low, are also starting to bounce back, with 53% of EU businesses now looking to maintain or increase their export activity in the coming year. “A year ago, before the pandemic took hold, we said firms needed to invest in technology, internationalisation and people,” says Larissa. “These are still the three most significant areas.” However, with variations in Covid-19 strains temporarily closing borders and choking freight between economies such as France and the UK, exporting of physical goods faces challenges as we head into 2021).[iii]

And when it comes to futureproofing, the pandemic may also provide an impetus for firms to properly integrate sustainability into their business models. Earlier this quarter, our research into sustainability in the mid-market unearthed a paradoxical challenge for businesses: while 57% of the mid-market believe that the economic hit from Covid-19 is likely to push sustainability down the list of company priorities, an even greater number – 61% – believe the Coronavirus will raise public expectations of businesses’ commitment to sustainability, making the issue more urgent than ever.

“Before the pandemic, it was difficult for businesses to start focusing on sustainability alongside their day to day business propositions, but with all the upheaval over the last 12 months, mid-market firms have a new opportunity to include sustainability in whatever they are going to do”, says Larissa.

A commitment to sustainability will also be key for attracting and retaining talent, an ongoing challenge for the region, as workers in the region – particularly younger generations – start to prioritise living and working more sustainably.

“I believe we will see a lot of mid-market businesses becoming leaders in this space and integrating sustainability into their business models. This process is a lot harder for large corporates. Small and medium-sized firms are more agile and can do this with greater ease.”

Slow order books weigh on employment

Nearly half of the EU mid-market firms surveyed see a shortage of orders on the horizon next year, revealing that demand conditions remain subdued despite an initial bounce in activity following Q2 lockdowns.


As a result, only 27% expect selling prices to increase next year. And only a quarter (26%) of firms anticipate increasing employment in 2021, ten percentage points below pre-pandemic levels just 12 months ago. While almost a third (32%) plan to make staff cuts over the next 12 months. A separate survey from the European Round Table for industry shows that over half of industrial firms expect employment to decline in the region.[iv]

“Currently, you see a huge disparity in employment levels between those countries with tourist economies and those that don’t,” says Larissa. “Those countries that depend on tourism – Spain, Greece, Italy – are really struggling. But in the Netherlands, for example, some sectors that were quick to digitise have actually benefitted from the crisis. Mobility is also a major issue, but this will naturally increase once people are vaccinated”.

Many mid-market firms have been agile amid the virus, finding new markets and new ways to operate. These often require workers to quickly adopt new skills or for firms to find people with them. As such, a major way to navigate subdued demand, Larissa explains, is to continue investing in people, and this is certainly on the minds of mid-market leaders. Though employment intentions have taken a hit, a significant 73% of firms still plan to either increase or maintain their current investment in staff.

“It goes back to the investment point. Investing in unskilled people can feel like swimming upstream. But if businesses focus on this, and invest in their processes, that’s a strong way forward.”

“The EU is a mature market,” she concludes. “And it will recover. The outlook has dipped lower than it has done in other regions in recent years, but each time the EU has proved resilient.”

Other regional and country highlights


Spanish entrepreneurs foresee more barriers than opportunities for growth next year

Read more Spain

Asia Pacific

Coronavirus control keeps APAC mid-market on upward trajectory

Read more Map of Asia Pacific area

Latin America

Latin American business health rebounds to pre-pandemic levels

Read more Map of Latin America area

North America

North America stages the strongest comeback of all our profiled regions

Read more Map of North America area
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    i. www.oecd-ilibrary.org - Turning hope into reality - 1 December 2020
    ii. Visit our methodology section for more.
    iii. www.ft.com - UK isolated as countries ban travel and limit freight over Covid variant - 21 December 2020
    iv. www.ft.com - Europe on way to recovery, say leading industrialists - 25 November 2020

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