Events to Watch: Europe remains a source of upside and downside risk for 2018

In our recently released report FSG’s Events to Watch for 2018 we profiled the downside and upside scenarios that may imperil the strategic initiatives and revenue targets of multinationals. Over the next few weeks, we will be sharing a series of blog posts that highlight some of the major global events, and the potential impact on MNCs.

Part 1 – Prepare for Trump-driven trade conflict in 2018

Part 2 – Geopolitical risks to the oil supply picture in 2018

Part 3 – Escalating conflict with North Korea would disrupt 2018 plans for MNCs


Europe, which has often over the last decade been a source of vulnerability for the global economy, offers potential for both upside and downside risk in 2018. FSG believes that multinationals should be monitoring two non-base case scenarios for 2018: a Brexit cancellation and a renewed Eurozone crisis.

Brexit cancellation: the only potential low-likelihood upside risk that FSG profiled for our Global Events to Watch report. In this scenario public opinion sours on Brexit, creating new political avenues for leaders to reassess and renegotiate the UK’s position in the single market. This includes a potential early election leading to a change in leadership more supportive of taking a softer line on Brexit, with parliament welcoming a revocation of the Article 50, obtaining the support of current EU members, and putting a pause to further moves toward Brexit

The short-term impact for multinationals would be the following:

  • Policy clarity improves business confidence – Clear takeaways on trade, tariff, and immigration policies would give companies more foresight into their production and personnel plans, improving confidence
  • Inflationary pressures subside – Inflation moderates, supporting consumer demand and stabilizing input prices for businesses. Companies would gain more foresight on product pricing and marketing for the UK and EU markets
  • Pound appreciates, but stabilizes – Pound appreciation would make UK exports relatively more expensive, but a stable exchange rate would also create a more predictable production and pricing environment for companies

Likelihood: 10%. FSG’s base case is that uncertainty will be prolonged, as Brexit negotiations fail to reach resolution throughout mhhhhuch of 2018. Significant deterioration in business confidence and the pound will likely suffer significant volatility.

How to prepare: Consider futures contracts or price agreements for inputs that would be impacted by pound appreciation. Also consider whether targeted marketing tactics that emphasize internationalism could improve sales volumes.

Eurozone crisis renewed: A deterioration in market confidence, driven by election results in Italy or challenges relating to another Greek debt bailout, disrupts the eurozone’s financial sector, prompting a sharp slowdown in bank lending and overall economic activity. The eurozone’s fragile banking sector remains a source of concern, and another round of politically-driven uncertainty could push the region back into crisis

The short-term impact for multinationals would be the following:

  • Economic contagion – A sharp slowdown in eurozone growth would result in declining exports from Central Europe, Turkey, North Africa, and South Africa, which in turn would damage local business sectors
  • Currency depreciation – Slowing regional growth would contribute to a depreciation of eurozone and other EU currencies, as well as West African currencies pegged to the euro. Currency depreciation would make local exports more competitive, but also squeezes these teams’ earnings in US dollar or British pound terms, putting multinationals’ profits under considerable pressure

Likelihood: 10%. FSG’s base case remains for a solidified recovery for the Eurozone with pro-business governments implement some reforms, but populists stalling acceleration of other structural reforms.  Neither elections in Italy nor another round of negotiations over a Greek bailout are likely to lead to significant banking sector disruption

How to prepare: Be proactive in evaluating the impact of renewed eurozone weakness on businesses, including sales volume and supply chain dynamics. Monitor event signposts, particularly in Italy. Should the event’s likelihood begin to increase, prepare contingency plans for addressing substantial potential economic damage

For more information

In our Events to Watch for 2018 report we provide in-depth scenarios, expected impact on business performance and operations, as well as recommended frameworks for contingency planning and effective market monitoring. Not a current client? You can purchase a copy on FSG’s online store here.

We also invite you to register and join our Events to Watch for 2018 webinar, presented by FSG’s Director for Global Economics, Antonio Martinez, and Global Head of Research, Joel Whitaker. Please register for the viewing time of your choice:

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