Business optimism fell sharply across the globe in the third quarter of 2012, according to the latest Grant Thornton International Business Report (IBR). Despite attempts to encourage investment, the majority of businesses say that they will maintain or increase their cash reserves “ building on the $4trillion of cash already sitting on company balance sheets. To get their economies moving, the majority of the 3,000 businesses interviewed want their governments to increase fiscal activity “something which might boost investment.
Paul Raleigh, Global leader of growth at Grant Thornton International, said: With the economic outlook so uncertain, businesses around the world continue to build cash rather than re-invest it back into their operations. There is a vicious cycle at work, in which low confidence leads to delayed decisions on investment, hiring staff and rewarding top performers. These delayed decisions means slower growth, which in turn undermines confidence.
Reason might tell business leaders to stuff their cash under their mattress and wait for a sustained recovery. But instinct might say that with interest rates low and talent plentiful, this is the perfect time to invest in both their people and their operations, helping them to get ahead of the competition when the global economy is on a surer footing.
The IBR reveals that businesses are looking for greater fiscal stimulus in the way of tax incentives and an increase in government spending and investment, as opposed to further monetary measures. Globally, 68% of businesses called for more tax cuts and breaks whilst 48% of businesses said they want to see an increase in government spending and investment.
This call comes as businesses say they intend to sit on increasing amounts of cash in the coming months. Globally, 80% of businesses expect to either maintain or increase their cash reserves over the next 12 months according to the IBR. A further 45% of businesses currently hold cash reserves above 10% of revenues, and 14% hold more than 30%.
Paul Raleigh continued: Many developed market governments are wrestling with huge debt burdens. There is a huge responsibility now on governments to provide leadership and to work together to overcome the debt problems and create the environment necessary for business leaders to invest for the future.
Globally, business optimism has fallen from 23% to 8% in Q3. Drops in confidence across the worlds three largest economies have been equally pronounced: In the US, the Presidential election and the looming fiscal cliff are weighing on decision making, optimism for the next 12 months fell from 50% to 19%. In China confidence fell from 33% to 11% as the marked slowdown, particularly in exports, hits the economy. And with hopes receding that recent pronouncements by the ECB would put an end to the eurozone crisis, optimism across the EU fell from -2% to -13%.
declining business optimism
This downturn in optimism has dampened the investment outlook for businesses. Expectations for boosting investment in plant and machinery over the next 12 months are down by six percentage points globally with some of the biggest falls in China (down 12), Germany and the US (both down 11). Moreover, in all three economies, ten per cent fewer businesses are planning to offer staff pay rises cooling hope that consumer demand could boost global growth prospects.
Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 12,000 businesses per year across 41 economies. This unique survey draws upon 20 years of trend data for most European participants and 10 years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com
Data collection
Data collection is managed by Grant Thornton International's core research partner -Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.
Sample
IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 3,050 businesses from all industry sectors across the globe conducted in August/September 2012. The target respondents are chief executive officers, managing directors, chairmen or other senior executives.
