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International Business Report

Global business survey finds strong increase in optimism heading into 2017

Global business survey finds strong increase in optimism heading into 2017; whilst UK confidence remains subdued post-Brexit vote

  • Global business optimism up from 33% to 38%, highest level since Q3 2015
  • US business optimism up from 43% to 54%
  • China business optimism up from 30% to 46%
  • EU business optimism up from 28% to 34%
  • UK business optimism up from 21% to 26%
  • Investments in plants & machinery at a two-year high globally

LONDON -- Business leaders around the world report a strong increase in optimism heading into 2017. The findings, from Grant Thornton’s most recent quarterly global survey of 2,600 businesses in 37 economies, suggest that business leaders are putting a period of uncertainty around many major issues behind them and entering the New Year in a positive frame of mind. However, in the UK, business optimism remains substantially below levels seen this time last year, following a significant drop in confidence after the UK's vote to leave the European Union.

Research from the Grant Thornton International Business Report reveals that global business optimism at the end of Q4 2016 stands at net 38%. This is an increase of five percentage points from Q3 and the highest level since Q3 2015. In the US, optimism has increased from 43% to 54% - and the trend is repeated around the globe. The world’s two other big economic blocs, China (30% to 46%) and the EU (28% to 34%), have reported similar jumps.

Whilst the UK experienced a 5pp quarter-on-quarter increase in optimism – in line with the global average – the net 26% figure remains substantially below the 73% figure recorded this time last year (Q4 2015). It also follows a 19pp drop in optimism in Q3, where respondents were surveyed following the outcome of the EU referendum. EU countries with strong trading ties to the UK also reported significant drops in confidence this quarter, such as in Ireland (-22pp), Poland (-14pp) and Italy (-14pp).

Encouragingly, UK employment expectations for the year ahead rose +18pp in the quarter, alongside gains in profitability expectations (+4pp) and revenue increases (+1pp). More UK businesses also signalled intentions to invest more in R&D (+14pp) and plants and machinery (+8pp) than in the previous quarter. However, exchange rate fluctuations remain a key concern for UK businesses, up +12pp from the previous quarter and +20pp from the same period last year.

Robert Hannah, chief operating officer at Grant Thornton UK LLP, commented:

“Uncertainty was certainly the global business buzzword of 2016, and much of that came from Brexit and the US presidential election. Whilst many questions still remain as to how these events will play out over the years ahead, businesses now know the outcome and have a clearer steer on key issues such as taxes, jobs and trade policy.

"Many UK businesses are now treating uncertainty as the only certainty, and adapting to the new norm in more prudent ways than was possibly the case earlier in the year, when Brexit and a Donald Trump presidency seemed a distant possibility.  

“Looking to the year ahead, we don’t know what exactly will come out of Washington, or what shape the Brexit negotiations will take, or how trade partnerships across Asia will evolve, or how elections in France and Germany might play out and their subsequent impact on the Euro. But for the most part, business leaders are shrugging it off, having a bit more clarity than they had three months ago during our last global survey. They know that Brexit is happening, they know the identity of the next US president, and with those questions answered they start the New Year in a positive state of mind. That is evident in investment and revenue expectations too.”

Findings from Grant Thornton’s IBR reveal that strong fundamentals are underpinning the international rise in optimism. Globally, the proportion of firms expecting revenue to increase in 2017 has gone up by 5pp to net 50% - the highest figure in nearly two years. China (+14pp) and the US (+11pp) reported strong swings in revenue expectations in Q4. The global outlook for selling prices (+13pp) and profitability (+4pp) is equally strong, and plans to invest more in plant & machinery are also at a two-year high (33%) internationally.

However, the IBR also reveals that the picture is not entirely positive around the globe. Business optimism in Mexico has fallen to just 8% in Q4 – the lowest quarterly figure it has ever recorded. In Russia, optimism has fallen by 13pp to -7% (more pessimistic than optimistic). Business leaders in the developed APAC economies (down from -8% to -16%) are also markedly more pessimistic. In addition, the proportion of firms in the EU citing exchange rate fluctuations as a constraint on growth has increased by 8pp to 21%, as elections in France and Germany have the potential to cause market uncertainty.

Robert Hannah added:

“There will be challenges in 2017, but that shouldn’t mean growth plans should be abandoned outright. Forward-looking businesses in the UK are investing for greater efficiency, hiring new skilled workers, or researching new markets or services, perhaps in response to the Brexit vote and the domestic headwinds this creates. Whilst in the short-term, exporters will be benefitting from Sterling's weakness relative to other currencies, many businesses will be looking at what this means longer term – particularly as import costs for raw inputs and other goods start to be felt more strongly. Retailers, for instance, have been able to absorb some of this over the past months, but we'll inevitably start seeing consumer prices start to increase next year in order to keep pace and with only marginal (real) wage growth expectations, consumer spending could significantly slow down, forcing businesses to look for growth abroad. Those dynamic firms with the ability to think long-term and focus on opportunities in markets abroad early-on will no doubt win in this new dynamic.”