Europe’s economic woes in the last quarter of 2018

Banking & Finance
| The European | 16th October 2018
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The geopolitical impact on the EU’s economy tried to slow down business activities in the year 2018 but the economy did not lose pace. However, the last quarter of the year 2018 will be a test for the resilience of the EU’s economy because of several geopolitical developments.

At this moment, the EU is facing the following ‘four’ significant issues that might result in a full-blown economic crisis:

1. Brexit: A “family feud” between the UK and the EU that has shaken both the sides. It is very hard to determine the outcome at this moment. In fact, the whispers of Hard Brexit have created a perpetual gloom in the political power corridors.

2. Russia Sanctions: The EU’s economy was severely affected by sanctions imposed on Russia by the USA. Russia was the fourth largest trade partner of the EU. The allies of the USA had to comply with the directives of the Washington administration. The sanctions have been extended till January 31, 2019.

3. US Trade War: Implementing the USA President’s “America First” policy, the Trump administration imposed trade tariffs on China as well as on its allies in the EU. It resulted in a face-off between German Chancellor Angela Merkel and the US President Donald Trump.

4. Iran Sanctions: This year Trump administration unilaterally ended negotiations for a nuclear deal with Iran. The countries of the EU bloc expressed their reservations. With an aim to secure a “first-mover advantage”, the EU auto, aerospace and the oil exploration companies were rolling in with new business deals signed during the interim period, when sanctions were lifted to facilitate ongoing negotiations.

What the future holds for the EU in Iran standoff is yet to be seen, but recently Federica Mogherini, the EU’s Foreign Policy Chief, told the media that the EU is considering forming a “special purpose vehicle-SPV” to carry on trade with Iran even after November 2018 when complete sanctions will be in force.

In the light of the above events and developments and with no end in sight to the confusion that these events are causing, the last quarter of the year 2018 seems to be the most challenging one for the economy of the EU.

The geopolitical uncertainty has also affected some companies of the EU requiring a capital injection to fuel their ambitious expansion plans. These companies had to shelve plans for their IPOs. “Exyte” (Germany) is one of such companies.

Exyte is engaged in design, engineering and construction of high-tech facilities, plants and factories. It was founded in 1912. This century-old company has developed a special expertise in building (sites) controlled and regulated environments.

Bird’s eye view of Exyte’s business

  • The company builds labs and production sites, including clean rooms where dust and particle free air is crucial for the production of goods.
  • It provides a full spectrum of services from consulting and design to managing turnkey solutions.
  • It serves in growth markets such as semiconductors, life sciences, electronics, chemicals, pharmaceuticals, energy and data centers.
  • Exyte operates in 20 countries.
  • It has over 4,800 employees.

Exyte’s customers include big names like Infineon Technologies, Germany (Semiconductor manufacturing company), ASML Holding, Netherlands (Semiconductor Company) and Micron Technology Corporation, USA (semiconductor device manufacturing company).

Word on the street

Reuters (5 October 2018) while reporting “shelving of Exyte IPO” document comments of different “unnamed sources”.

Reuters quotes one “banker familiar with the deal”,

“In the early meetings, it looked like some investors were struggling to value the business. It’s quite an interesting and successful company, just not one with obvious benchmarks for public investors to price off.”

The above comment while appreciating the strong fundaments of Exyte also hint at the lack of a certain product or commodity on which the financial projections can be based upon and measured for a foreseeable future.

Reuters also states,

“People close to the Exyte IPO plans had said that stock worth up to 1 billion euros ($1.15 billion) was expected to be offered in a deal that could have valued the company at as much as 3 billion euros.”

Wolfgang Buechele, the CEO of Exyte said that the company was postponing the listing because market conditions were not considered ideal. He said,

“We are sticking to our plans, but have no time pressure and will wait for the right market conditions.”

Future

The EU will have to battle with its ally, the USA for its own economic survival. It is crucial to sidestep unnecessary roadblocks if the EU wants its economy to keep running. Also, the negotiations for a smooth Brexit need to be carried out at a fast pace to get rid of the uncertainties in the present business environment.

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