New figures from Grant Thornton’s International Business Report (IBR) show that whereas business confidence in the eurozone remains high, growing uncertainty has hit UK business optimism hard. The new figures are revealed as negotiations around Brexit become protracted and the UK’s timetable to transition away from the European Union (EU) extends.
The outlook for businesses in the eurozone continues to be positive in Q3 of 2017. Optimism stands at net 57%, just down from 58% in Q2, which was the highest figure ever recorded for the region. GDP growth in the eurozone hit its fastest pace since 2011 in Q2, and evidence that the European recovery is becoming more broad based comes in a change of fortunes for three European nations.
Italy’s level of optimism increased from net 34% in Q2 2017 to 48% in Q3, Greece rose 18 pp to -4% and Ireland also advanced 4pp to 64%. The outlook for companies in France remains upbeat, with optimism at 41%.
Figures for the UK’s business confidence come as a stark contrast to the eurozone and at a critical time for the country as it negotiates Brexit. Optimism among businesses leaders in the UK stands at its lowest since Q1 2013, with a 13pp fall to 9%. Despite this continued deterioration, expectations for revenue remain buoyant (up 3pp to 52%).
Businesses are also confident that selling prices for their goods and services can rise in the next 12 months (up from 32% in Q2 to 45%). Alongside export expectations at a near two-year high of 23%, many underlying indicators reported by UK businesses remain strong.
Although optimism in the eurozone is relatively broad based, it is not uniform. Germany and Spain have both experienced a setback in Q3 2017. Optimism in Germany fell (down 8pp to 68%) and Spain’s outlook dropped to 45% (down 25pp from Q2). There have been corresponding reductions in expectations for revenue in Germany and Spain, down 25pp and 12pp respectively. Worryingly for the German economy the outlook for exports has fallen 11pp to 20%.
Part of the reason for Germany’s export concerns will be China - a key export market for Germany’s capital goods. Here the outlook for investment in capital plant and machinery has fallen in the last quarter (down 14pp to 10%).