“At a certain point you just get post-traumatic stress syndrome where everything is numb,” said Joe Hogan, chief executive of Swiss engineering group ABB .
With Greece’s prime minister, George Papandreou, facing a knife-edge confidence vote on Friday evening — on which the fate of his nation’s bailout deal hangs — the warning lights are flashing for Europe’s sputtering economy.
Executives fear the euro zone debt crisis will undermine consumer confidence and hit capital expenditure.
Evidence suggests it has already started to happen.
Private sector activity in the euro zone shrank at its fastest pace in 28 months in October, with Markit’s composite Purchasing Managers’ Index sinking to 46.5, from 49.1 in September. Below 50 signals contraction.
“(This) is the kind of level which, frankly, is pointing to recession,” said Peter Dixon, an economist at Commerzbank.
On Thursday, the European Central Bank’s new president, Mario Draghi, said the euro zone could subside into a “mild recession” by year-end, as the ECB surprised markets with a 0.25 percentage point cut in its key interest rate.
For those European companies reporting quarterly earnings this week, caution has been the watchword in outlooks as the political uncertainty racks up the pain.
“In our sector, heavy industry, we need two things — stability and visibility,” said Patrick Kron, CEO of French power and transport engineering company Alstom .
“Quite frankly, what is going on now is not helping. This is accentuating the wait-and-see policy of a large number of economic actors.”
British Airways owner IAG , announcing results on Friday, said it saw potentially weaker demand in 2012, while telecom equipment gear maker Alcatel-Lucent cut its full-year profitability goal due to spending cuts.
In the financial sector, Royal Bank of Scotland took a further hit on its Greek government bonds and said it had sold most of its Italian bonds.
On Thursday, German carmaker BMW said it had contingency plans for either muted growth or recession in 2012.
Business leaders holding a “B20” meeting in Cannes, France, alongside the G20 summit of world leaders, appealed for European leaders to put their house in order and avoid a break-up of the euro or a disorderly default by Greece.
In a letter to Herman Van Rompuy, president of the European Council, they said a three-point action plan, agreed just over a week ago and which is now in jeopardy, was essential in helping strengthen the EU economy.
A Greek exit from the euro zone may no longer be unthinkable but it is still a nightmare scenario for business leaders.
“(If) it blows up, it will have an enormous impact on economic growth,” said Harrie Noy, CEO of Dutch engineering consultancy Arcadis .
A Reuters poll last month found a consensus for euro zone growth in the last quarter of this year and only modest expansion in 2012, with a 40 percent chance of a return to recession in the currency bloc in 2012.
The Organization for Economic Cooperation and Development on Oct. 31 cut its forecast for 2012 growth to 0.3 percent, compared with the 1.6 percent expected in 2011.
The ECB’s Draghi said this week significant downward revisions to forecasts for 2012 were “very likely.”
ING CEO Jan Hommen told reporters: “If Greece will go, it will have an impact on other countries and I think spinning this virus for Europe could be extremely dangerous. It needs to be contained and it needs to be contained quickly.”
