European business sentiment improves, but inflation and debt risks mount: Survey

Sentiment among European businesses has improved across the industrial and services sectors since June, although concerns over rising inflation and sovereign debt are intensifying, according to a survey published by BusinessEurope on Thursday.

The survey by Europe's largest business association, which represents 42 national federations and around 25 million businesses, showed that the share of industrial companies reporting negative sentiment nearly halved to 33% from 62% in June. In the services sector, negative sentiment declined to 30% from 50% over the same period.

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Investment expectations have also improved, particularly in the industrial sector. However, forecasts for investment growth this year have been revised down, highlighting continued uncertainty over the economic outlook.

Inflation has emerged as a growing concern for businesses. Nearly half of BusinessEurope's members said they were very concerned about rising prices, compared with 40% in June, while almost half reported being slightly concerned.

Eurozone inflation climbed to a three-year high of 4% in October, driven by surging food and energy prices. Energy inflation reached 20%, as the US war with Iran pushed up global energy costs, adding to price pressures across the bloc, which relies heavily on imported energy.

The survey also highlighted growing dissatisfaction with national fiscal policies. More than half of BusinessEurope's members now consider their country's fiscal stance too expansionary, while a large majority believe the European Central Bank's monetary policy stance is appropriate.

BusinessEurope warned that rising government debt, higher borrowing costs and delayed fiscal consolidation were increasing vulnerabilities across several European Union member states, Reuters reported.

Financial markets have pushed up borrowing costs for France and other European countries perceived to have weaker public finances, reflecting growing investor concerns over debt levels and fiscal sustainability.

The findings suggest that while business confidence across Europe is recovering, persistent inflationary pressures and concerns over government finances continue to cloud the region's economic outlook.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times.)