If the past two years have taught us anything, it is that predicting the future has become nearly impossible. Risking a glimpse into 2023 therefore comes with lots of caveats.
With Christine Lagarde as head of the European Central Bank, a difficult situation became an inflationary crisis. There is little sign that the loss of value of the euro is going to be curbed anytime soon, as Ms Lagarde still much prefers giving talks on gender equality. Add to this the trinity of sanctions on Russia, Opec doing everything it can to be unhelpful and the French overhauling their nuclear reactors, while the Germans switch them off. Energy prices will remain at current excessive levels during 2023.
With the combination of rapidly rising costs and dwindling demand (the citizens of Europe are already finding it difficult to pay for essentials), the profitability of companies is, at best, set to be squeezed. In the worst case, this will result in operating losses. Either way, after more than two years of Covid-19, the balance sheets of many companies do not offer much in the way of reserves to ride out hard times.
It is therefore likely that declining FDI figures will continue their downward path, dramatically decreasing greenfield figures presumably being slightly counter-balanced by merger and acquisition deals of cash-rich companies picking up assets in distress. European governments (with the exception of German chancellor Olaf Scholz) will start to think long and hard about whether it is a good idea to have one’s infrastructure and technological crown jewels being picked up for peanuts by foreign corporate raiders.
It is therefore likely that declining FDI figures will continue their downward path, dramatically decreasing greenfield figures presumably being slightly counter-balanced by merger and acquisition deals of cash-rich companies picking up assets in distress.
The flow of cross-border investments will be further hampered by protectionist tendencies and geopolitical tensions. Investment decisions, especially in the field of technology, have long passed the stage of solely being a corporate decision. Don’t forget moves to stall Chinese telecoms giant Huawei’s expansion over concerns about a backdoor in its equipment, or the controversy surrounding the 2016 acquisition of Kuka Robotics by China’s Midea Group.
It is not all doom and gloom, however. New industries are emerging, generating jobs and value. E-mobility is on a meteoric trajectory, and European suppliers are playing a key role in this market. Hydrogen and the wider field of renewable energy generation are also entering their growth phase. These are sectors in which Europe is certainly able to compete on a global scale.
While it might feel like “Winter is coming” – to quote Game of Thrones – there is also plenty to look forward to in 2023.
Martin Kaspar is head of business development at a German Mittelstand company in the automotive industry.
Martin's previous columns:
- Vertical strategies make for acquisitive companies.
- The remote working paradigm shift.
- Innovation ecosystems need home-grown networks.
This article first appeared in the December 2022/January 2023 print edition of fDi Intelligence. View a digital edition of the magazine here.