International Business Report (IBR)

Soaring optimism creates investment window

Grant Thornton’s International Business Report (IBR) finds that global optimism in the economic outlook has reached an all-time high at net 61% [i] in Q1 2018, underpinned by a broad-based economic recovery. With economic fundamentals at their strongest since the financial crisis, the message to businesses is to act now to identify opportunities for investment.

Global optimism and broad-based growth

The breadth of business optimism around the world is evident in the IBR’s findings. Some of the most striking increases can be observed in North America (up 7pp in Q1 from Q4 2017) and the EU (up 12pp from Q4 2017).

Line graph showing regional net optimism in the last two years

Such widespread business optimism is a welcome indication that the global economic recovery is finally broad- based. The IBR observes an inclusive spell of economic growth and expansion across markets, with economic fundamentals the strongest they have been since the financial crisis. GDP across the key economies of North America, Europe and Asia Pacific shows uniform acceleration and above average growth since Q2 2017, and broad-based expansion is expected to continue in 2018. [iii]

Despite optimism and growth, businesses are reluctant to invest

The IBR reveals that despite high levels of optimism and broad-based economic growth, investment in infrastructure, capital goods and research is not increasing in step. Global plans to invest more in plant and machinery are down 2pp to net 34% in Q1 2018, while plans to increase R&D spend are down 3pp to 22%. Investment in new buildings remains flat for the third consecutive quarter.

Southern Europe is an exception, with investment plans increasing slightly in line with economic turnaround. Here, expectations for investment in new buildings, plant and machinery, and research and development (R&D) are up on the previous quarter by 5pp, 3pp and 1pp respectively.

Line graph showing drop in each investment area

‘Time is now’ to grasp investment opportunities

Based on these observations, economic predictions are positive for the short to medium term, creating a window of opportunity for businesses to invest. Interest rates remain low but are projected to rise over the next two years, meaning the time is right for businesses is to borrow if they’re thinking of investing in 2019 or 2020. They will do well to identify opportunities to invest at the peak of this cycle to secure their future success.

For further information please contact: Andrew Brosnan, insight and thought leadership manager, Grant Thornton.

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[i] Net optimism is calculated as optimistic business leaders less pessimistic respondents.

[ii] Eurostat 2018

[iii] Oxford Economics 2018