Business confidence on a knife edge heading into 2012

Q4-2011 Economic Update: Global business confidence is balancing on a knife edge heading into 2012 according to new figures from Grant Thornton’s International Business Report (IBR). With the global economic outlook dominated by the crisis in the eurozone, fears are increasing that business growth will become even more difficult than in 2011.

The latest research shows that global business optimism in the fourth quarter of 2011 stands at net 0%, indicating a balance between those business leaders feeling optimistic about their economies in 2012 and those feeling pessimistic. It represents a further deterioration from 3% in Q3 2011 and 31% in Q2 2011.

The regional picture is, however, more nuanced. Optimism levels in the BRIC economies (up from 25% to 34%) and North America (up from 3% to 6%) have shown significant improvement over the last quarter. However, at the global level, this has been offset by a large drop in Europe where optimism fell from 0% to -17% in Q4. In the eurozone optimism fell from 2% to -16%.

Ed Nusbaum, CEO of Grant Thornton International, said: “Heading into 2012, we’re seeing a polarisation of business confidence between Europe and the rest of the world. However, the threat of total meltdown in the eurozone means business leaders remain uncertain about the year ahead – they simply do not know how things will turn out. That uncertainty is sapping confidence and choking business growth prospects.

“The business optimism results mirror the perilous position of the global economy; stronger results for key markets such as Brazil, China and the United States being offset by the lack of a clear resolution to the sovereign debt crisis in Europe.”

The research also suggests global trade is suffering. Having risen by 10 percentage points in Q3, the proportion of businesses citing a shortage of orders rose again in Q4, up five percentage points to 37% globally. This result was largely driven by an increase of nine percentage points across the eurozone, but businesses in North America (up seven) and the BRICs (up four) are also suffering.

In addition, business expectation for increasing revenues and profits fell by two percentage points globally over the last quarter. Regionally, profitability expectations are down significantly in the EU (down 12 percentage points to 13%), but also in Latin America (down 16 to 47%) and in the ASEAN region (down 24 to 33%).

Away from the economic gloom, the results from the United States provide a welcome and encouraging bright spot in the research. Expectations for increasing revenue and profits in the world’s largest economy in 2012 are both up by seven percentage points, to stand at 48% and 40% respectively. Further, net 35% of US businesses plan to hire workers over the next 12 months, up from just 17% in Q3.

Ed Nusbaum added: “Around the world, prospects for growth are mixed. Businesses are having to work harder than ever to maintain margins and competitiveness in the face of powerful economic headwinds. Vital to the situation improving or deteriorating is the fate of the eurozone.

“This threatens to undermine business prospects around the world, not just in Europe. Businesses in the higher growth economies such as China and Brazil remain positive for now but Europe is the world’s largest single market and consequently a key trading partner. The effects of a further downturn will resonate even in these high growth markets and beyond.

“Policymakers in Europe have some job on their hands in 2012. The concern for businesses is that a focus on austerity rather than economic growth is damaging their own growth prospects. Certainly, the resolution of the crisis and securing the future of the euro is top of their New Year’s wish list.”