Negative Rates Fail to Spur Investment for Corporate Europeby
A prolonged period of negative interest rates is failing to revive investment at Europe’s companies, with the vast majority of businesses in the region saying the stimulus measures have had no affect at all on their growth plans.
Some 84 percent of the 9,440 companies surveyed by Swedish debt collector Intrum Justitia AB for its European Payment Report 2016 say low interest rates haven’t affected their willingness to invest. And perhaps more alarmingly, the number is up from 73 percent last year.
“Creating economic growth requires stability and optimism,” Intrum Justitia Chief Executive Officer Mikael Ericson said in the report. “Evidently, the strategy of keeping interest rates record low for more than a year has not created the much sought-after stability.”
Signs of stalling investment mark a blow to central banks hoping to revive growth across Europe through negative rates and quantitative easing. Europe needs its businesses to invest more if it’s to create the jobs needed to spur growth. In the euro area, where interest rates have been negative since mid-2014, gross domestic product will slow to 1.6 percent this year, compared with 2.3 percent in the U.S., the European Commission estimates.
“A calculation of an investment includes assumptions of the future,” Intrum said. “To get the calculation to go together those assumptions need to include a belief in stability and prosperity in that future. Perhaps the negative interest rates do not signal that stability at all -- rather that we are still in an extraordinary situation?”
The survey also identified another threat to growth, namely late payments. Some 33 percent of survey participants said they regard not being paid on time as a threat to overall survival while 25 percent said they are likely to cut jobs if clients pay late or not at all. That problem is more pronounced among Europe’s 20 million small and medium-sized companies, with many reporting that bigger firms are forcing them to accept late payments.
“It is a market failure that costs job opportunities for millions of Europeans that big corporations deliberately force SMEs to finance their cash flow,” Ericson said. “As much as two out of five SMEs say late payments prohibit growth of the company. That large corporations use their much smaller sub-suppliers to act as financier of their own cash-management processes is not only wrong, it also creates an imbalance in society.”