Issy-les-Moulineaux, 25 February 2009
The number of managers expressing confidence in their economic environment has declined sharply in practically all countries. On the whole, they are now more pessimistic with regard to their economic and financial situation in 2009.
This drop in confidence is explained by the shocks that are affecting them, whether these are general (financial crisis, commodity and energy prices) or specific to certain economies (credit, real estate).
Fears of difficulties in accessing finance in 2009 are present in all countries. The feeling that conditions will tighten is nevertheless relative, as there are expectations of a gradual improvement in financing conditions.
Overall, the number of European companies expecting to resort to credit has decreased sharply, to fewer than 30% for example in France.
Investment, the main driver of eurozone growth in the last three years, looks set to weaken in the months ahead, with business managers keen to reduce their spending amid the prevailing uncertainty. The fall is expected to be more marked in the case of capacity investment, due to the slowdown in the global economy, but less steep in the case of productivity investment, with European companies lagging somewhat and remaining concerned about competition from emerging markets.
In summary, the Barometer results suggest that business managers expect growth in Europe to slow markedly in 2009. The results nevertheless conceal substantial differences between the various countries. On the one hand, the downturn in confidence is less severe in countries indirectly affected by the financial crisis (Germany, France, Italy, Belgium and Portugal). Among this first group of countries, German business managers remain relatively optimistic with regard to the business outlook in 2009.
On the other hand, companies are much more pessimistic in countries directly affected by clearly identified shocks (deep real-estate recession, bursting of a credit bubble) in addition to the financial shock (Spain and United Kingdom).
FINANCIAL HEALTH AND ECONOMIC ENVIRONMENT OF SMES
Drop in confidence of European business managers
The morale of European SME managers deteriorated sharply in 2008 due to the intensification of the general shocks (financial crisis, commodity and energy prices) and those specific to certain economies (credit, real estate). European companies have a much less favourable outlook than in previous years.
- Spanish companies are the most pessimistic. A majority of them (57%) even speak of a decrease in revenues in 2009, no doubt due to the scale of the current cyclical slowdown, coupled with the real-estate recession.
- French SMEs are pessimistic with regard to the outlook for their revenues: 60% expect revenues to remain stagnant in 2009; only 24% expect an increase, compared to almost 50% last year;
- Italian and Portuguese SMEs are experiencing fairly similar situations to those of their French counterparts.
- Confidence among business managers in Germany is also down. A substantial proportion (30%) nevertheless still expect a rise in revenues.
- Belgium and the UK are the countries with the greatest proportion (40%) of business managers expecting a rise in revenues in 2009.
Between 15% and 25% expect a decrease in 2009 (as many as 44% in Spain), much higher percentages than last year.
The expected deterioration is mainly due to cyclical factors (financial crisis, less buoyant prospects, rises in commodity prices, etc.). On a structural level, the efforts made since the beginning of the 2000s (debt reduction, restructuring) have enabled companies to improve their financial health and their resilience in the event of shocks.
The fall in profits has nevertheless meant greater recourse to external financing. In the short term, the fall in interest rates in Europe since mid-2008 should enable companies to benefit from somewhat more favourable financing conditions.
Relatively tight financing conditions
The number of business managers expecting difficulties in accessing credit over the forthcoming months has increased :
- 50% of Spanish business managers surveyed believe that access to credit will be "quite difficult" over the next 12 months.
- In the other countries, around 25-30% of business managers expect access to finance to be relatively difficult.
These trends are due to persistent pressures on the money markets, which have forced the banks to toughen their lending conditions.
The Barometer results should nevertheless be put into perspective. With the exception of Spain, 60-70% of European companies consider access to credit to be "neither easy nor difficult" or "fairly easy". This is no doubt explained by the fact that companies also appear to expect a gradual improvement in financing conditions in the wake of the rate cuts by the European Central Bank (ECB) and an easing of pressure on the money markets.
Furthermore, the number of European companies intending to resort to credit has decreased sharply. This is evidence both of an expected weakening of demand, particularly in countries with a more marked fall in activity, but also of the relative tightening of credit conditions and the rising cost of risk. Fewer than 30% of French SMEs are planning to resort to credit in the forthcoming months.
Unfavourable investment outlook
The Barometer results suggest that the investment cycle in the eurozone will mark time in 2009. In most countries, the number of companies expecting their capital spending to increase or remain unchanged in the next 12 months has declined.
This reduction in spending is expected to affect all types of investment. European SMEs expect in particular to reduce their capacity investments due to the easing of pressure on production resources in most countries with the expected slowdown in activity. Productivity investments are expected to continue for the modernisation of equipment, but at a slower pace. With the exception of Spain, the number of companies expecting to increase such spending is moderately lower or unchanged compared to 2008.
European SMEs are being affected by the same shocks:
- The great uncertainty resulting from the deepening of the financial crisis since the third quarter of 2008 has triggered a fall in confidence among economic agents, clouding the outlook for spending in the short term;
- The relative tightening of credit conditions, due particularly to the banks' refinancing problems, is weighing on agents' expenditure;
- The outlook for new openings (domestic and external) is less buoyant, due to the slowdown in the global economy.
Overall, having regard to all these unfavourable factors, productive investment is expected to fall sharply in all European countries. The bulk of the adjustment is expected at the end of 2008 and the beginning of 2009.
Brake on job creation
Job creation is expected to grind to a halt in 2009.
- In most countries, around 10% of companies expect their workforce to shrink in the next few months, a much higher figure than in 2008. The figure in Spain is as high as 30%, due to the economic situation.
- The majority of European SMEs (around 80%) expect their workforce to remain unchanged in the next few months.
- Employment in Belgium, Germany and the United Kingdom will most likely fall less than in the other countries, as the number of companies expressing a readiness to recruit is higher there than elsewhere (15-30%) This point should be put into context, however, since the survey was conducted before the worsening of the financial crisis caused a marked deterioration particularly in the economy and the labour market in the United Kingdom.
The risks weighing on the overall environment have intensified
The fall in confidence of European business managers is due to a series of shocks which weighed on the overall environment in 2008, particularly the oil shock in the first half of 2008.
The trends in commodity and energy prices are cited as the main factor of concern among companies. The resulting rise in intermediate consumption prices weighed on companies' margins, and the intensity of international competition prevented them from passing on all of this rise in input costs to the end-consumer.
Furthermore, taken as a whole, the phenomena resulting directly from the intensification of the financial crisis (interest and exchange rates) rank second among the risk factors cited by business managers.
Finally, a number of structural factors remain a major source of concern, notably competition from emerging countries, particularly China and the EU member states in central Europe, although the latter are also seen as an opportunity.
No convergence in debtor payment periods
In Europe as a whole, an SME receives payment on average after two months and one week, although there are wide disparities among the various countries:
- In Germany (37 days in 2008 / -2 days compared to 2007) and the United Kingdom (42 days / -1 day), these periods are the shortest and shortened further in 2008.
- In France (68 days / +2 days) and Belgium (61 days / +1 day), these periods lengthened slightly in 2008.
- In Spain (78 days / +5 days), Italy (98 days / +4 days) and Portugal (112 days / +13 days), these periods, which are among the longest in Europe, lengthened further in 2008, whereas they had shortened in Spain in 2007.
Germany remains the European country with the shortest payment periods (theoretical due date) and the lowest average number of days to payment, despite having substantial exports to risk countries.
The public sector is a major contributor to the lengthening of payment periods, particularly in Portugal and Italy, but also in Belgium.
The average payment delay is three weeks. It nevertheless ranges from around 11 days in Germany and the United Kingdom to more than a month in Portugal.
Many SMEs affected by bad debts
The rate of bad debts stabilised overall in 2008.
- The proportion of German SMEs with bad debts has tended to decrease since 2005. The companies concerned mainly have over 500 employees (89%).
- Spanish SMEs are the European companies with the lowest rate of bad debts. The rate is highest in companies with 50 to 500 employees (93%).
- 67% of British SMEs state that they have bad debts. The worst affected are companies with more than 50 employees (75% of responses) and companies in the building and public works sector (73%). Conversely, companies with six to nine employees face this situation less frequently (62%).
- France is one of the countries with the lowest proportion of companies with bad debts. The proportion of bad debts increases with the size of the company (81% in companies with 50 to 500 employees). The commercial sector is more exposed to bad debts (81%).
- The proportion of Italian SMEs with bad debts was 79% in 2008. Although down slightly since 2006, this rate remains one of the highest in Europe. Bad debts affect all sectors and sizes of company.
- In Portugal, bad debts mainly affect companies with 20 to 49 employees (91%) and those in the commercial (87%) and industrial (86%) sectors.
- The proportion of Belgian SMEs with bad debts is in line with the average of European SMEs. It is highest among companies in the commercial sector (85%).
The use of collection services and the trend in their use vary greatly depending on the country and sector: whereas German and British companies tend to resort to collections less frequently, the opposite is true in Spain and Italy. That is explained by intercompany commercial relationships, by the production cycle in the sector concerned and by the relative strengths of the purchaser and seller. It nevertheless represents an increased non-payment risk factor.
Any collection procedures are generally commenced more than one month after the theoretical due date of the debt.
Furthermore, the charging of interest on late payment is increasing in all countries, except in the United Kingdom and Belgium.
It is common in Germany (54% of companies), less widespread in Portugal, Italy and Spain (29%, 22% and 21% of companies respectively) and low in France and the United Kingdom (12% and 14% of companies respectively).
When it is charged, late payment interest is received in the vast majority of cases (almost 90% of companies).
European companies use external services
Two-thirds of companies in the countries surveyed use external services for the management of their receivables, although the services used and the situations differ from country to country.
The most frequently used service, recourse to law firms, increased further in several countries in 2008. Accountants came second, followed by credit insurance, for one in five European companies (with the exception of Italy: 14%).
The other solutions (credit references, factoring, etc.) are used in the same proportions as in previous years, except in Spain, where they are increasing.
In view of the economic context, it may be seen as paradoxical that SMEs believe credit insurance in particular gives companies substantial protection against debtor failures and a means of ensuring the continuity of their business.
For further information, the details of the survey and the charts are available in electronic format on request.
Eurofactor is the leading factoring provider in France and the first integrated factoring network in Europe, established in Germany, the Benelux countries, Spain, France, Portugal, the United Kingdom and Italy.
As a subsidiary of Crédit Agricole SA, Eurofactor plays a key role in business development by working with companies to structure the receivables management solution most suitable for their strategy, business sector, size and customer profile, both in France and internationally. In particular it has developed a pan-European product, European Pass®.