Gabriele Labombarda
03 May 2018
Global survey finds business optimism has reached an all-time high, meaning now may be the time to invest
Global data
Italian data
Global optimism in the economic outlook is at an all-time high, according to global research from Grant Thornton’s International Business Report (IBR). The findings reveal that the sharpest increases in optimism for the coming 12 months are in Europe and North America, although in all regions levels remain historically healthy. Concerns over economic uncertainty have also eased. With GDP growth marching in step in most regions, Grant Thornton urges businesses to act now to identify opportunities to invest for future success.
The IBR finds that in Q1 2018, global business optimism stands at net 61% - the highest figure recorded in 15 years of research. Some of the most striking increases come in the developed economies of North America (up 7pp in Q1) and the EU (up 12pp). Confidence among US firms is at an all-time high of net 89%.
In Europe, French business optimism is at new heights (net 75%) and the UK is at its most optimistic (net 31%) since it voted to leave the EU. Confidence is broad-based; in Greece, business optimism sits in positive territory (net 6%) for the first time in three years.
Across South East Asia, optimism has risen to net 61%. This is the highest figure in seven years. Elsewhere in Asia, however, China (-13pp) and Japan (-11pp) record dips in optimism. In addition, in Latin America optimism is down 10pp, to net 25%. However, even in these regions, optimism levels compare favourably with those in recent years.
Gabriele Labombarda, Partner and IBC Director at Bernoni Grant Thornton, commented: “An indication that the economic recovery is finally broad based is the increased optimism levels recorded in Spain, Italy and Greece, favoured by a widespread economic stability and economic fundamentals at their maximum since the financial crisis. GDP is growing in most regions and we are seeing a broad-based and inclusive spell of economic growth across markets.
The above holds true also for Italy despite the uncertainty following the election results, which did not help optimism levels.
“As the world’s largest economy, new levels of optimism in the US is a significant contributor to the global picture. Its business community has recently welcomed tax reforms and that will positively impact sentiment for the coming 12 months.
“The dip in optimism in China and Japan hardly represents confidence in freefall. But with rhetoric around trade ratcheting up between West and East, it will be telling to see how businesses respond over the next quarter. Most take the view that a fully blown ‘trade war’ will be averted given the risks on all sides, but uncertainty is never welcome.”
The IBR reveals that despite high levels of optimism, investment in research and machinery is not increasing in step. Though expectations for investment in new buildings, plant and machinery, and research and development (R&D) have increased slightly in southern Europe (up on the previous quarter by 5pp, 3pp and 1pp respectively), overall investment levels have slipped. Global plans to invest more in plant & machinery are down 2pp to net 34% in Q1, plans to increase R&D spend are down 3pp, and expectations of increased investment in new buildings remain steady for the third consecutive quarter.
Gabriele Labombarda added: “The global economy is firing more strongly than it has in many years. Economic predictions are positive for the short to medium term. However, history tells us that growth tends to come in cycles, with 2018 being the high point in this case.
This means that the right time to invest in future growth is now: interest rates remain low but are projected to rise over the next two years and now represents a window of opportunity for businesses to invest in the future.”
“Businesses are undergoing fundamental change: new ideas and new technologies are the current focus, but increasing investment in R&D or innovation should not impact negatively on employees’ salaries. The future of business will require engaging with workers to make the most of emerging opportunities. Workers, in turn, will need to be able to adapt quickly to the ever changing business context.
“Businesses that will find the right balance between innovation and human capital will stand the best chance of reaping the benefits during the good times and of staying resilient when economic conditions inevitably change. Similarly, workers with flexibility skills and more open to change will be better placed than those who refuse change basing on the mantra “This is the way things have always been done””.