New research from Grant Thornton’s International Business Report (IBR), a quarterly global business survey of more than 3,200 businesses in 44 economies, reveals a dramatic reversal of fortunes for business leaders in the world’s two largest economies. While U.S. businesses are feeling more confident about growth in their operations and the economy, optimism among peers in China has slumped to the lowest level recorded in IBR history.
The IBR reveals U.S. business optimism climbed to net 55 percent in Q2, up from 31 percent in Q1, and the highest level recorded since 2005. This improving sentiment flows through to U.S. business growth expectations; net 59 percent expect to see revenues climb over the next 12 months, up from 46 percent in Q1, and 48 percent expect profits to grow, up from 42 percent three months previously.
By comparison, business optimism in China fell to just net 4 percent in Q2, down from 25 percent in Q1 and the lowest level since 2006 (when businesses were first interviewed in China for IBR). Chinese businesses are less confident about increasing revenues (down from net 72% in Q1 to 60% in Q2), exports (29% to 15%) and profitability (69% to 42%) over the next 12 months.
Ed Nusbaum; “The divergence in the data is relative in that China is coming off a big high and the U.S. off a deep low. Ultimately global growth prospects would be best served by a strengthening of both markets but broader macroeconomic trends are feeding into business sentiment.
In the U.S., the Federal Reserve recently suggested it could wind up its programme of quantitative easing by this time next year if the economy keeps improving. Meanwhile rising house prices, increased construction starts and continuing strong stock market performance are helping to boost both business and consumer confidence.
By contrast, China’s economy is slowing. Exports grew by just 1 percent in May due to weakness in key markets such as the EU. And the new leadership appear eager to rein in credit growth with fears that a housing bubble is building. The downside of course is that this reduces the spending power of businesses and consumers and the People’s Bank of China has since had to inject liquidity into its banking system last month to stave off a credit squeeze.” — Ed Nusbaum, global CEO at Grant Thornton
United Arab Emirates revenue expectations increase
Optimism has remained relatively consistent with Q1 2013 and has ranged from 88 percent to 86 percent. Revenue expectations have increased along with export expectations, which highlight a positive trend for the region. The IBR also highlighted that the UAE government is extremely supportive of business diversification and that predominately UAE based businesses would want to diversify into the technology and Hospitality and leisure industries.
The IBR also highlighted that the percentage of businesses investing in research and development has increased from 18 percent in Q1 to 32 percent. This could see the emergence of new products and services and promote diversification within the market, as research and development will promote innovation and therefore support increasing revenue if researched, developed and implemented effectively.
Hisham Farouk; “Current trends in the United Arab Emirates makes this a great region for investment and opportunity. With the IBR highlighting increases in import, export and research and development, it further supports the ambitious plans within the UAE. The UAE has increased international presence; which truly supports it being seen as the central MENA business hub for the world.
The IBR highlights a positive increase in optimism for the USA in stark contrast to a slight decrease in one of the BRIC economies, China. However, change in business environment coupled with new regulation can alter deter businesses in relation to optimism. We believe that with actionable advice, coupled with reason and instinct, dynamic businesses can remain optimism even through challenging times with advisors like Grant Thornton.” — Hisham Farouk, Managing Partner of Grant Thornton UAE
Global business optimism holds as Japan and the UK rally
An improvement in G7 business confidence in Q2 balanced a slide in BRIC economies. In the UK, business optimism climbed from net -1 percent in Q1 to 34 percent in Q2, whilst sentiment in Japan turned positive for the first time in IBR history, rising to net 8 percent fueled by the stimulus and reform measures of the new leadership, dubbed ‘Abenomics’.
Eurozone business confidence remains fragile however, sliding to net -8 percent in Q2, down from -2 percent in the three months previous. Mirroring China, business sentiment dropped in the other three BRIC economies, meaning G7 business optimism (32%) climbed above the BRIC average (23%) in Q2 – another first in IBR history.