Improving business optimism in mature economies offers hope for global recovery

April 02, 2012: Business optimism increased over the last three months driven by improved revenue and demand prospects, according to the latest research from the Grant Thornton International Business Report (IBR), a quarterly survey of 3,000 businesses in 40 countries. However, despite the pick-up, businesses still remain less optimistic than they were this time last year, underscoring the fragile state of the global economic recovery.

The improvement is most apparent in the G7 economies, where business optimism rose by 28 percentage points over the past three months, climbing from -12% in Q4-2011 to 16% in Q1-2012. The increase in optimism in the United States – where optimism increased by 45 percentage points, from just 1% in Q4-2011 to 46% in Q1-2012 – is a major factor. Meanwhile, businesses in Japan (-53%) and Europe (-4%) remain pessimistic, but both have seen improvements over the last quarter.

However, looking back at results over the past 12 months tells a more sobering story. This time last year, optimism in the G7 economies stood at 27%, 11 percentage points higher than the Q1-2012 figure. Indeed, only in Japan and the United States have levels of business optimism recovered to where they were in Q1-2011.

Ed Nusbaum, CEO of Grant Thornton International, said: “There is good news in that the outlook of many businesses has improved over the past three months. But global growth prospects remain delicately balanced. The comparison with this time last year shows how difficult the last 12 months have been, and how much further we have to go.”

The IBR data also reveal that businesses in mature markets are much more positive about growing their business over the next 12 months. Business expectations for increasing revenues (up nine percentage points) and profits (up eight) in the G7 have grown robustly over the past quarter, whilst 8% fewer businesses are citing a lack of demand as a constraint on growth.

There are also signs of increasing business investment across the G7 with 6% more businesses expecting to boost plant and machinery, and 3% more planning investment in new buildings.

Ed Nusbaum said: “The economic recovery in the United States, borne out by brighter GDP and employment data, seems to have really gained momentum in the last quarter. The situation in Europe remains much more uncertain, but the signs from businesses there show optimism is returning, albeit very tentatively.

“The results for business investment are also encouraging. We know that some businesses in mature markets are sitting on large cash reserves they built up during the economic downturn, and we would hope to see continued signs of these funds being reinvested to support long-term growth strategies.”

The improving situation in the G7 has seen the global business optimism average rise to 19% this quarter, up from 0% three months previously. Developing economies are also more optimistic: the BRIC average rose from 34% to 41%, the ASEAN average from 0% to 27% and the Latin America average from 61% to 73%.

Ed Nusbaum added: “Signs of improvement in mature economies are clearly having a knock-on effect in emerging markets. Economies such as the BRICs, Mexico and Turkey are playing an increasingly important role in global growth prospects. But as they integrate further into the global economy, their businesses are becoming more reliant on the health of mature markets.

“For me, the key takeaway from these results is that both emerging and mature markets seem to be pulling in the same direction, which can only bode well for the global recovery.”