Global business optimism falters

Previously recovering levels of business optimism hit a wall in the second quarter of 2011, with sentiment dipping in the wake of natural disasters, political unrest and economic volatility according to the latest research from Grant Thornton’s International Business Report (IBR). With the impact of sovereign debt issues in the eurozone still to be felt, the outlook for business remains uncertain.

The research reveals that across many regions there has been a dramatic quarter on quarter decline in levels of business optimism. Although levels of optimism remain higher now than a year ago, the revival in optimism has stuttered badly in the second quarter of 2011. With business owners becoming significantly less confident about the outlook for their countries' economies, the report’s findings raise concerns about the strength of the global economic recovery.

The trend is most acute in Latin America, where optimism fell 15% over the last quarter. Argentina, Brazil and Chile, key economies in the region, saw optimism fall by 30%, 24% and 10% respectively in the second quarter of the year. The BRIC group of economies fell collectively by 13%. Globally, business optimism has fallen by 3% from the previous quarter although it is 4% higher over the year.

Q1 2011 to Q2 2011 percentage swings in optimism  

Ed Nusbaum, CEO of Grant Thornton International, said: “In global terms the past three months have been challenging and business optimism has been hit hard. Companies are feeling the effects of the unrest in the Middle East and the subsequent volatility in oil and commodity prices, which recently led western nations to release large stocks of oil. In addition, the earthquake and nuclear disaster in Japan caused huge disruption to supply chains.

“Fears about rising inflation across Latin America will weigh on business optimism. Inflation is currently running at more than 6% in Brazil and almost 10% in Argentina. The worry amongst businesses there is that inflation will continue to rise and that their economies will overheat. Our research tells us that over half the businesses in the region (54%) expect to increase prices, and with tight labour markets also making it difficult for those businesses to keep wages down, such fears look warranted.

“Eyes are now fixed on the horizon to determine if this is a bump in the road for optimism or the beginnings of a trend. With fears over the future of the eurozone I think we’ll see business optimism wane across Europe, at a time when confidence was beginning to return there (+5% in the last quarter).

“Clearly governments, and international organisations such as the IMF, must demonstrate that they are able to steer the economy and make credible decisions. If businesses are left unconvinced that their leaders can deal with these issues, what is currently a stutter has the potential to become an economic stall.”

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For further information please contact:
Christine Hobart
International communications manager
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E christine.hobart@uk.gt.com

Notes to editors

The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of over 11,000 businesses per year across 39 economies. This unique survey draws upon 19 years of trend data for most European participants and nine years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com .

Data collection

The research is carried out primarily by telephone interview lasting approximately 15 minutes with the exception of Japan (postal), Philippines and Armenia (face to face), mainland China and India (mixture of face-to-face and telephone) where cultural differences dictate a tailored approach. Telephone interviews enable Grant Thornton International to conduct the exact number of recommended interviews and to be certain that the most appropriate individuals are interviewed in an organisation which meets the profile criteria.

Data collection is managed by Grant Thornton International's core research partner - Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. From 2011, fieldwork takes place on a quarterly basis every quarter with fieldwork lasting approximately one month and a half.

Sample

IBR is a survey of medium to large privately held businesses*. The data for this release are drawn from interviews with 2,697 businesses across the globe conducted in May/June 2011.

The target respondents are chief executive officers, managing directors, chairmen or other senior executives (title dependent on what is most appropriate for the individual country) from 39 economies primarily across five sectors: manufacturing (25 per cent), services (25 per cent), retail (15 per cent) and construction (10 per cent) with the remaining 25 per cent spread across all sectors.

Locally, the sample tends to cover the sectors mentioned previously, with some countries being able to have local valid data for specific sectors or regions when the sample size is large enough.