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International business

Global business optimism rebounds as inflation eases

Investment intentions reach new highs

Optimism among mid-market business leaders climbed to 67% during the first half of 2023 (up 8% compared to H2-22) as inflation began to ease, according to Grant Thornton’s International Business Report (IBR), which tracks sentiment among global mid-market business leaders.

The climb in optimism has been driven by record numbers of mid-market business leaders expecting increases in profitability (up four points to 59%), selling prices (up four points to 55%) and revenue from exports (up two points to 47%).

One explanation for the expected increase in profitability is the record number of leaders expecting an increase in exports over the next 12 months – up two points to 47%. Those expecting to increase revenue from non-domestic markets was also up four points to 44% as well as those expecting to increase the number of countries they sell to – up two points to 43%. This matches previous highs in terms of the number of respondents expecting to see increases in these areas.

While the IMF recently commented that the rise in central bank interest rates to fight inflation around the world 'continues to weigh on economic activity', mid-market business leaders appear to believe these actions are working and the end of rising interest rates may be in sight, explaining their increased optimism for the next 12 months. 

This optimism is driving record levels of investment intentions with a record 61% of business leaders indicating they plan to invest in technology over the next 12 months – this could, in part, be a response to the explosion of artificial intelligence during the first half of 2023.

However, the future does not appear to be completely technology dependent, with a record 57% of business leaders (up four points) indicating they expect to increase investment in staff skills. Investment intentions are also up for research and development (up three points to 54%), plant and machinery (up two points to 46%) and new buildings (up two points to 38%).

As the IMF pointed out in its most recent World Economic Outlook, the global economy has shown near-term resilience, however, there remain a number of persistent challenges. Economic uncertainty remains the leading constraint identified by mid-market business leaders in Grant Thornton’s IBR, according to 58% of respondents (down two points). 

While the number of executives highlighting constraints has fallen across the board, these still remain significantly above pre-pandemic averages. For example, those identifying energy costs as a constraint fell six points to 54% (compared to a pre-pandemic average of 29%). Concerns over availability of skilled workers fell four points to 53% and labour costs fell two points to 53% during H1 2023. The impact of regulation and red tape was static at 51%, while concerns over a shortage of finance fell three points to 44% and transport infrastructure was down five points to 44%.

Peter Bodin, CEO of Grant Thornton International Ltd, commented: “CEOs around the world are under pressure like never before. They had to re-engineer business models and supply chains during the pandemic. Now they are doing it again in the face of rising interest rates, the arrival of ai and the ever-increasing demands of ESG. This is why it makes complete sense that we can see concerns over business constraints at historically high levels (although softening) along with rising optimism.

"It is also little surprise that we are seeing record levels of investment intentions from mid-market businesses. They know they need to adapt – again – to a changing business landscape. Choosing the right investments, the right markets to move into is key, especially when you never know what crisis might be around the next corner. It is the perennial challenge for any CEO to ensure they respond appropriately to changing market dynamics, but not over react.”

International Business Report
The Grant Thornton International Business Report (IBR) is a survey of mid-market businesses. Launched in 1992, the IBR now provides insight into the views and expectations of around 10,000 businesses across 28 economies.
Questionnaires are translated into local languages and fieldwork is undertaken on a biannual basis, through both online and telephone interviews. The data for this release is from interviews conducted between May and June with chief executive officers, managing directors, chairpersons or other senior executives from all industry sectors.

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