Top ten risks in Europe
- Asset bubble
- Interstate conflict
- Energy price shock
- Fiscal crises
- Data fraud or theft
- Failure of national governance
- Unemployment or underemployment
- Large-scale involuntary migration
- Profound social instability
Cyber risks remain the biggest risk identified for doing business across Europe, with economic and political risks increasing.
Concerns about “cyberattacks” are top among business leaders in the four largest European Union (EU) economies: Germany, France, Italy and the United Kingdom; and rank first in another six countries across the continent. In late 2018 and throughout 2019, European countries have experienced cyberattacks and data-theft attacks on state agencies and large businesses: Germany saw attacks on email accounts of members of parliament, the military and several embassies in November 2018, while in the lead-up to the European elections in May, various types of malicious activities were encountered. Similar attacks took place prior to the Finnish elections in April, and on public institutions in Croatia and the Czech Republic in April and August, respectively. Moreover, cyber incidents targeting the European business sector have increased since 2018: 61% of businesses reported cyber incidents compared to 45% in the previous year.24 It is worth recognizing that, to mitigate these threats, companies and authorities are responding with designated cyber-training centres. On a regulatory level, the EU adopted the EU Law Enforcement Emergency Response Protocol in March 2019 and implemented a new sanctions framework in May 2019 in order to deploy improved tools to deter perpetrators.
Economic issues remain a big concern for European business executives, with “asset bubble” ranking second regionally, first in Cyprus, Estonia, Lithuania, Portugal and Sweden, and second in nine other European economies, including France, Germany and Spain. The risk has moved up from number four in 2018 to number two in 2019 in three of the four largest European economies (Germany, France, Spain). After years of persistently low interest rates, the European business sector could be worried that the housing market will react negatively if interest rates were to start rising again. At the same time, housing prices have continued to increase in certain countries, such as in Portugal and Ireland, where they have risen by over 10% compared to last year.25
Despite no military hostilities in Europe,26 “interstate conflict” has moved up to the third highest risk for doing business across the continent. It ranked first in Poland and in the top three in seven other countries: France, Hungary, Lithuania, Luxembourg, Slovenia, Switzerland and Turkey. Continued geopolitical tensions between the EU/United States and Russia due to the unresolved situation in Ukraine, including extensions of corresponding EU sanctions against Russia until at least February 2020, make it difficult for Russia’s neighbouring regions to ignore the possibility of an interstate conflict. Countries with strong global financial sectors, such as Switzerland and Luxembourg, depend on stable economic international markets; heightened geopolitical uncertainty creates higher risks for investors.
The top mover in the region compared to 2018 is “energy price shock”, which rose eight places to become the fourth major risk, ranking first in Serbia and in the top five in another 12 economies (including France and Spain). Even though prices in the region increased slightly, and in some cases fell in 2018,27 business executives in the Balkans seem very concerned about rising energy prices, as they are predicted to increase by up to 40% in 2019.28 Moreover, relatively stable low oil prices and the prospect of sharp increases due to heightened geopolitical tensions and unpredictable events, such as the recent attacks on Saudi Arabia’s oil industry, have sparked economic fears over higher energy prices. Additionally, the transitional costs from the region’s number-one energy source, coal, to greener energies threatens to add further burdens on energy prices.
Europe continues to recover from the 2008–2009 financial crisis, but the region is, at the same time, facing decreasing growth forecasts compared to 201829 . It is therefore not surprising that “fiscal crises” ranks fifth in the region. It is the top business concern in five countries (Denmark, Greece, Ireland, Slovenia and Turkey) and in the top five in 11 others, mostly Eastern and Southern European economies. Arguably, positive signs, such as record-low bond rates or lower EU-wide unemployment rates than before the 2008–2009 financial crises, do not conceal the uncertainty about how Brexit, the European Central Bank’s economic stimuli, a further reduction of record-low interest rates and a new round of quantitative easing could affect businesses in Europe.
Other top-ranked risks include “failure of national governance”, which ranked among the top two predominantly in Central and Eastern Europe and the Baltics, and third in Greece, Portugal and the United Kingdom. Some of these countries have seen significant internal political struggles in recent months (Romania, Slovakia), continued unstable governments in office (Bosnia and Herzegovina), or uncertainty with regards to the outcome of upcoming elections (Croatia). As for the United Kingdom, this risk was also in the top three in 2018, which could be explained by the growing uncertainty surrounding the Brexit process.
European business leaders ranked “unemployment or underemployment” as the eighth business risk in the region – mostly influenced by responses from Spain and Turkey, where unemployment remains higher than the average for the region. In Spain, unemployment was the top risk for 60% of respondents in the country. Even though the Spanish unemployment rate is at its lowest level since 2008, it is still higher than before the 2008–2009 financial crisis (8.2% in 2007 vs. 15.3% in 2018). As for Turkey, one of the most populated countries in the region, this risk ranked number five, which could reflect the fact that its unemployment rate has increased for the past six years in a row.30 Eleven other countries warned of unemployment as a top ten risk, highlighting the fact that many in the European business community are sceptical about the strength of the region’s labour market.
Lastly, this year, “large-scale involuntary migration” entered the list of the top ten business risks, especially in countries along the so-called Balkan route and those with large shares of migrant populations (including Germany and Switzerland). While involuntary immigration into the European Union has decreased in recent years, businesspeople from the region could be concerned that the European economy’s capability to support future migration flows might be challenged as it faces a less optimistic outlook.