In an environment crammed with exorbitant levels of unemployment and soaring personal debt, where consumers are cautious to spend and governments are looking for ways to deleverage, private investment appears as the only silver lining vowing Euro bloc’s recovery.
So far, exports have played a significant role to pull the region out of crisis but now exports are facing headwinds as Europe itself is its own biggest export market and since the growth of the entire bloc is lackluster, decelerating export performance comes with no surprise.
Now, when export is no more a valid option to bank on, Europe is at a crossroads with all eyes on the private investment.
Private investment is the hardest hit component of Europe’s GDP, touting a 14.5 percent plunge between 2007 to 2011 and a whopping loss of 354 billion euro in real terms; yet it is at the heart of the region’s economic and financial revival.
According to McKinsey Global Institute, amid frail demand and uncertain backdrop, many private companies are still willing to undertake huge investment plans in Europe, given the government step in and do away with the regulatory barriers that thwart private sector growth.
MGI’s recent research highlights that only if the government closes 10 percent of the sub-sector variation among the countries in the capital stock per worker would generate more than 360 billion euro in additional investment which is more than what was lost during the crisis.
Undeniably, private sector growth is crucial for EU’s resurgence, but shaping up strategies and stepping up efforts for the same, is the real challenge facing the economy.
The first proposed stride towards the goal of a thriving private sector is the promotion of macroeconomic stability and improvement of the regulatory environment to aspire confidence among private investors.
Next, the government should facilitate firms’ access to a broad range of financial services in an effort to enable firms tomanage their surging cost of funds.
Moreover, since the Euro area is experiencing anemic growth leading to lesser in-house trade activities, promotion of trade between the EU and other regions should be fostered through bilateral or regional trade agreements, removal of non-tariff barriers, etc.
In this quest, the European Commission delegations are currently visiting growth regions in the world to help EU enterprises better profit from fast growing emerging markets, such as China, South East Asia and Latin America.
On the micro level, companies also need to scrutinise their own approaches to investment, instead of solely relying on government initiatives. Firms are required to take more in-depth perspective on market opportunities i.e., focusing on niche markets, at the city rather than country level, catalyzing capital productivity and ensuring that the harsh experience of recent years does not screen out potential attractive opportunities by creating a bias against risk.
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