Based on responses from 42,000 businesses across 27 countries, the survey finds that Europe’s business people are expecting another challenging year. High labour costs, skills shortages and a growing regulatory burden are the main concerns, the survey finds.

The regulatory burden “has markedly increased compared to last year”, according to what is Europe’s biggest survey of business sentiment, which includes an Irish input.

“Most new administrative costs can be traced to environmental, social and governance (ESG) regulations under the European Green Deal, which will impose nearly €2bn in additional burdens on both businesses and citizens,” the report says.

Reporting requirements under the EU’s sustainability reporting and due diligence framework seem to be a particularly significant source of administrative burden for businesses.

The excessive regulatory burden can seriously dampen the European market attractiveness

As they have less resources to cost-effectively address regulatory compliance, SMEs are often the most affected by these reporting requirements.

“Overall, the excessive regulatory burden can seriously dampen the European market attractiveness, as well as its general business sentiment, contributing to the perception of an overly bureaucratic ecosystem that is unfavourable to business growth,” says the report.

“Although the European Commission is seeking to reduce regulatory burdens, progress remains limited.”

The problems being caused by excessive red tape were highlighted in the recent report by Mario Draghi on competitiveness, which claimed Europe’s economic performance has fallen behind as a result.

The report said that an oppressive and overly complex regulatory framework was holding back European businesses vis a vis their counterparts in China, America and in other emerging economies.

In 2025, the biggest challenge for EU businesses is expected to be high labour costs, according to the survey published today.

This was found in all the main economic sectors, such as industry, services and construction. A combination of rising wages and higher non-wage employment costs is being blamed.

A lack of skilled workers is another obstacle identified by the survey of European firms. The shortage is especially critical in construction, healthcare and ICT. European firms particularly need highly skilled workers due to the new disruptive technologies.

Speaking at the Irish launch of the survey, Ian Talbot, the chief executive of Chambers Ireland, said: “Irish businesses are approaching 2025 with optimism but despite an increase in business confidence compared to last year, significant challenges remain.

“High labour costs and an ever-growing regulatory burden continue to be major obstacles and expectations for export sales have deteriorated.

“Combined, this points to a weakened competitive edge.”

Mr Talbot said we are at a tipping point for our businesses. “The ‘regulate first, deal with the consequences later’ approach to EU policymaking must stop now. The new European Commission and co-legislators must focus on encouraging Irish businesses to invest, employ, innovate and pursue opportunities within the single market and globally.”

While modest growth is expected in the Irish domestic market, Mr Talbot said: “We are united with our European colleagues in calling for action to address this competitive pitfall.”

Eurochambres president Vladimír Dlouhý said: “The EU must double down on enhancing Europe’s productivity and provide an enabling environment for businesses to grow and compete internationally.”