- Global business optimism hits all time quarterly high of +51% -- five consecutive quarters of increases
- US business optimism hits an all-time high of 81%, and China remains at near three year high of 48%
- Europe and UK go their different ways on business confidence: EU reaches two-year high at 50%, whilst UK business optimism stands at 22% - down from 40% one year ago and 79% two years ago
- Plans to increase hiring over next year reaches record level of 36% globally; UK sees quarterly drop from 36% to 25% of businesses expecting to increase hiring over the year
- But percentage of businesses globally who identify a lack of skilled workers as a constraint has increased to just over one in three (35%) - highest quarterly level ever. UK businesses express similar concerns, at 30%
LONDON – New figures from Grant Thornton’s International Business Report (IBR), a long-running global survey of 2,500 businesses in 36 economies, reveal that while business optimism is rising to new quarterly highs, a storm may be brewing in the shape of a skilled worker shortage. In addition to high global business optimism, the survey finds increases in revenue and profitability expectations. However, growing fears over workforce skills could impact confidence around the world.
The findings show that global business optimism hit at an all time quarterly high of +51%1 in the second quarter of this year. This represents five consecutive quarters of increases in global optimism. Healthy confidence is evident in the US, where optimism has hit an all-time high of 81%; in the EU, which has jumped to a two year high (50%); and in China, where optimism remains at 48% - a near three year high. Underpinning global business optimism, revenue expectations also hit an all-time quarterly high of 56%, as did expectations around increased profitability (47%).
UK business optimism, however, remains subdued; currently standing at 22%. This compares with 40% in the same period one year ago, and 79% two years ago. Encouragingly, more UK businesses are anticipating a rise in exports in the year ahead, from 14% two years ago to 22% at present.
Robert Hannah, chief operating officer at Grant Thornton UK LLP, commented: “It’s understandable that UK businesses will be feeling somewhat at odds with their international counterparts, given the continued uncertainty on Brexit negotiations, and wider political and economic instability over the past two years. That being said, many dynamic organisations are continuing to explore opportunities in markets abroad, where British goods and services still carry significant potential – particularly at a time when the relative value of the Pound remains subdued. To further UK export potential at this critical juncture, more collaboration on distribution channels between small and large firms could further enable our exporters to leverage each other’s expertise and resources. Similarly, the government should be looking at ways to develop a stronger export culture, for instance by introducing new tax credits for the cost of researching and entering new markets.”
A looming global skills gap set to inhibit growth
With global business confidence at a high, a less welcome milestone is also set this quarter. The percentage of businesses who identify a lack of skilled workers as a constraint has increased globally to just over one in three (35%) - its equal highest quarterly level ever. In the UK, 30% of businesses identified a lack of skilled workers as a constraint to growth.
Robert Hannah continued: “With the UK unemployment rate reaching a 42 year low, businesses should be revisiting their people strategies to ensure they’re fit for purpose. Organisations up and down the country continue to point to concerns over skilled staff shortages as a major potential constraint for growth; and in an increasingly tight labour market, coupled with nominal real wage growth and increasing inflation rates, businesses may soon find their people looking elsewhere.
“Beyond their immediate hiring needs, most progressive organisations are also looking longer term to ensure a future pipeline of talent. As technology continues to change the nature of work, many of today’s jobs may be non-existent in the next generation, so employers and educators need to ensure better synchronicity between the skills available and the needs from business – particularly to remain competitive as a vibrant, post-Brexit economy develops. Government efforts, such as the Apprenticeship Levy, could also go a long way in ensuring organisations are adapting and developing their people to suit commercial requirements.”
Europe and UK go their different ways on business confidence
Grant Thornton’s IBR also shows a resurgent Europe growing in business confidence, whilst the outlook from UK businesses trends downwards. The decline in optimism among UK business leaders is the continuation of a two-year trend which began before the referendum on membership of the European Union.
Two years ago, optimism among UK business sat at +79%2, compared with +22% at present. This ebb in confidence has been a steady decline through 2016 and into the current year. The outlook for UK company revenues and profits declined in step and are now +49% (+61% in Q2 2015) and +43% (+57 Q2 2015), respectively. The position is one that looks increasingly out of step with a Europe on the up.
As a trading bloc, the European Union (EU) has seen optimism rise from +39% to +50% in the last quarter. Just a year ago it was +35%. The change of mood in Southern Europe has been even more dramatic with a rise from +23% in the last quarter to +45%. In the last quarter, revenue expectations rose 9 points to 56% across the EU.
Robert Hannah, chief operating officer at Grant Thornton UK LLP, commented: “Whilst on the surface, the broad based recovery in Europe could be seen as a threat to UK companies, we should also bear in mind the relative turbulence across the Eurozone over the past few years and view this as a recalibration in stability of sorts. As we’ve historically seen in times of uncertainty, businesses that make prudent investments in adverse times generally stand to gain the most in an upswing. Particularly at a time of continued low borrowing costs, businesses should be looking not just at the immediate business climate, but also taking a longer view of their operations, exports and people strategies to ensure they’re in an internationally competitive position, whilst the details of our exit from the EU continue to be ironed out.”