Business optimism rising

Global business optimism has increased over the last three months, driven by improved revenue and demand prospects, according to the latest Grant Thornton International Business Report (IBR).

The survey of 3,000 businesses across 40 countries found improvement is most apparent in the G7 economies, where business optimism rose by 28% climbing from -12% in Q4 2011 to 16% in Q1 2012. Overall, companies optimistic about the future outnumber pessimistic businesses by 16%.

In the United States, optimism increased by 45%, up from just 1% in Q4 2011 to 46% in Q1 2012. Businesses in Japan (-53%) and Europe (-4%) remain pessimistic despite improvements throughout the last quarter.

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While Canadian sentiment has certainly recovered from its dip at the close of last year, with optimism increasing 5% to 51%, investor optimism hasn’t quite reached the high of 80% seen in the second quarter of 2011.

“It’s definitely encouraging to see the outlook of many businesses has improved over the past three months, particularly in Canada,” says Bill Brushett, national client services leader for Grant Thornton. “However, reflecting on the last year or so, we can see how much global growth prospects remain delicately balanced.”

Despite the cautious global climate, the report reveals that businesses in mature markets are positive about growing their business in the coming year. Expectations for increasing revenues (up 9%) and profits (up 8%) in the G7 have grown and 8% fewer businesses are citing a lack of demand as a major constraint.

There are also signs of increasing business investment across the G7 with 6% more businesses expecting to boost plant and machinery, and 3% more planning investment in new buildings.

In Canada, 57% expect to see revenues increase (up 8%), but only 18% expect to invest in research and development. A lack of skilled workers continues to be the biggest constraint on business growth in Canada, with 38% listing the issue as a main problem.

Brushett adds, “To continue to grow, Canada needs to focus on core areas such as access to a skilled workforce and long-term investment in R&D. Seeing momentum build in the recovery in the United States bodes well for our economy, particularly in manufacturing and distribution.”

The global business optimism average rose to 19% this quarter, up from 0% three months ago. Developing economies have higher hopes; the BRIC average rose from 34% to 41%; the ASEAN average from 0% to 27%; and the Latin America average from 61% to 73%.

“Economies such as the BRICs, Mexico and Turkey are playing an increasingly important role in global growth prospects,” says Ed Nusbaum, CEO of Grant Thornton International. “But as they integrate further into the global economy, their businesses are becoming more reliant on the health of mature markets.”

He adds, “Both emerging and mature markets seem to be pulling in the same direction currently, which can only bode well for the global recovery.”

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Read the full report for more information.