1. Policy responses to the energy crisis shape business decisions
Energy markets and Europe’s policy response to the energy crisis will continue to have a significant impact on business investment decisions in 2023. Many governments (France, Germany, Netherlands, etc.) have committed to providing financial compensation to companies until 2023. This provides some reassurance and gives companies time to adapt. Energy prices in Europe are expected to remain high in the coming years compared to regions such as the United States and the Middle East, thus necessitating adaptation. Low-cost (fossil) energy in these regions will convince some companies to shift investments, taking advantage of the additional incentives provided by the U.S. Inflation Reduction Act.
As a result, there will be increasing pressure on the production of energy-intensive products with low added value in Europe, such as ammonia, metals and glass. This can be a painful process, especially in areas where such activity is the cornerstone of the local economy. How painful it will be will largely depend on how much support EU policy makers are willing to accept and whether companies can be partially restructured. Debates on supporting energy-intensive sectors are expected to continue in 2023, but more questions are raised in Europe about the role of less energy-intensive high-tech manufacturing activities as a key driver of future growth There is a possibility.
2. Demand resilience to be tested
With a third of the global economy likely to slip into recession in 2023, we do not expect a rapid improvement in the outlook for the B2C sector. Energy, food, and fuel take up the majority of your budget, and you spend less money on any product or service.
In food retail, discounters are gaining market share, and this is spilling over to suppliers. On the other hand, many non-food retailers are feeling volume pressure as consumers show little willingness to make big purchases. As a result, we have seen warehouses and distribution centers fill up in both the EU and the US. These trends also affect the companies that ship their goods. For leisure providers, 2023 could be a reality check after the post-COVID-19 spending boom. Output in sectors such as accommodation and aviation will still fall short of pre-COVID levels in developed countries.
3. Companies will continue to be under pressure to do more to reduce carbon
Some companies are currently defining a path to “net zero” and next steps to reduce their emissions, but this is still uncommon. During COP27, a UN group of experts said that “his one-third of the world’s largest listed companies have made net-zero commitments, showing how that goal is embedded in corporate strategy.” Only half of them are
External pressure from customers and non-governmental organizations will lead more companies to make commitments or adjust their current goals. It also assists investors and other stakeholders in setting corporate sustainability reports and targets. However, plans for such commitments are likely to meet resistance within companies, as targets often attract criticism from shareholders and environmentalists. and may discourage some decision makers from making public commitments. But overall, we expect more companies to have carbon reduction targets in 2023.
Source: ING
