- Drivers of the economy on a wave of optimism
Globally, business optimism is at its highest level on record (49%) heading into Q2 of 2017, according to the latest Grant Thornton mid-market business survey, The International Business Report.
- Global business optimism up from 38% to 49%
- Business optimism in the US up from 54% to 80%, in Canada up from 33% to 59%, in Mexico up from 8% to 32%, and in the EU up from 34% to 39%
- Investment in plants and machinery, and new buildings, at a two-year global high
- Lack of skilled workers also at a two and a half year global high
The research shows that confidence is particularly strong in the US, where levels have surged from 54% in Q4 of 2016 to a 14-year high at 80%. This surge in optimism among mid-market decision-makers bodes well for the overall economy, as the segment often acts as the engine room for broader economic growth.
The findings, from Grant Thornton’s most recent quarterly global survey of 2,400 businesses in 36 economies, suggest that the new pro-business US administration is acting as a catalyst, releasing pent-up confidence after a long period of supportive monetary policy and cheap oil. Although the dollar has come off its recent high, it remains strong at a time of relatively low-cost financing and healthier global growth. Neighbouring countries feel upbeat, too, as optimism rises in Canada from 33% to 59% and in Mexico from 8% to 32%. Countries across the European Union have seen a collective increase in optimism from 34% to 39% in the last quarter, despite the decision of the UK to leave the EU, while both Japan and Singapore have seen +20% improvements.
However, US optimism is not yet feeding through into other business fundamentals. US business expectations for revenue and profitability have fallen from 58% to 52%, and from 55% to 52%, respectively.
Francesca Lagerberg, Global leader at Grant Thornton, comments:
“As the world’s largest economy, US business confidence sends a shot of endorphins throughout the global market. It’s encouraging, therefore, to see that close neighbours and countries with strong trade links are also riding a new wave of hope. But clearly US businesses are not yet seeing or expecting this to result in bottom line change over the short term. Businesses await follow through on promises relating to spending, de-regulation and tax cuts, while stock markets continue to react to daily policy developments.”
The research suggests that many businesses are aiming to tap into the US market. One of the biggest providers of capital goods, German export expectations have climbed from 22% to 35%, as a 9% rise in the number of US firms expecting to invest in plant and machinery – at its strongest since Q1 2014 at 41% – signals a desire to re-tool for the future.
Globally, export expectations are up from 16% to 18% over the past three months, with prospects improving particularly across the developed Asia-Pacific (+4% to 12%), the G7 (+3% to 17%) and the EU (+2% to 24%). Nigeria (+26% to 40%), Germany (+13% to 35%), the Netherlands (+12% to 30%) and Ireland (+10% to 28%) have seen the most improvement. The data also reveals global rises in expectations of investment in plant and machinery to 34% (+1%) and new buildings to 22% (+3%).
Francesca Lagerberg adds:
“Growth in US investment expectations are clearly opening up opportunities for trade. In light of this, businesses should assess their export strategies over the coming years and consider how to take advantage of where investments are likely to strengthen.
“Still, though firms in many parts of the world are feeling positive, concern over a lack of skilled staff is at a two and a half year high of 33%, while global hiring expectations have also risen from 29% to 32%. This is a particular problem in tight labour markets, where businesses that don’t provide above inflation wage growth may soon find their workers looking elsewhere. We may finally be seeing the crunch point in countries like the UK, where unemployment has reached its lowest level in decades but where fewer businesses are expecting to offer above-inflation pay rises – especially since the mid-market is generally regarded as the driving force behind job growth.”
Notes to editors
The Grant Thornton International Business Report (IBR), launched in 1992 initially in nine European countries, now provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies. More information: www.grantthornton.global
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, primarily by telephone. IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with more than 2,400 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted in January and February 2017.