Businesses struggle against rising uncertainty

6 October 2011

New figures showing a pandemic collapse in business optimism during the third quarter of 2011 lay bare the dramatic impact of economic uncertainty and financial instability on the global business community.

The latest research from Grant Thornton’s International Business Report (IBR) reveals that net global business optimism has collapsed from 31% to just 3%. Ominously, this uncertainty has also spread to key emerging markets with both China and India seeing net optimism decline by 29 percentage points. The optimism of business owners in mature markets has been hit particularly hard; in North America optimism has dropped from 43% to 3%, and in the EU from 34% to 0%.

Ed Nusbaum, CEO of Grant Thornton International, said: “These figures are the worst since 2009, when we were in the midst of the global recession. The worrying thing is that negative sentiment about the wider economy is now damaging business growth prospects.

“Businesses are telling us they feel they have no control over how things are going to turn out. There’s a perception that attempts to create stability and stimulate growth just haven’t worked. An economic outlook that appeared to be improving just three months ago has been replaced with one of total uncertainty.”

The prospect of businesses driving growth is being constrained by the on-going uncertainty, especially in many mature markets where governments and consumers are reigning in spending. Globally, business expectations for employment, revenue and profits have fallen by 11, 10 and 9 percentage points respectively. Moreover, a shortage of demand is now the single biggest constraint on growth facing businesses around the world, cited by 32% of businesses in the last quarter. Regionally, rising shortages of demand were reported not just in Europe and North America but also in the BRIC, South East Asian and Asia-Pacific economies.

Ed Nusbaum added: “Two years ago, the feeling was that the emerging markets would underpin the global recovery. Now they are suffering a crisis of confidence too. The problems in Europe, which provides a huge export market for emerging economies, together with the increase in their own domestic problem, particularly rising inflation, begs the question: who will be in a position to lead the global recovery this time?

“The European sovereign debt crisis is a major contributor to the lack of confidence felt in emerging economies. The ECB Governing Council meeting this Thursday therefore assumes even greater importance than usual. Economies will not grow and regain confidence if businesses and consumers remain nervous about spending. Speculation is rife that the ECB will lower interest rates to try and boost spending, but although this will help, in isolation it will not be enough. Agreeing a package of measures to restore both stability and confidence is arguably the single biggest challenge policy makers face."