Global optimism drops, economic fundamentals remain strong

Following a period of heightened optimism and strong economic growth, the outlook for businesses in 2019 is markedly more reserved as the global economic cycle cools and political uncertainty begins to bite, according to the latest research from Grant Thornton’s International Business Report (IBR).

The research, which gathers responses biannually from 5,000 business leaders in 35 economies including the G20, found that global optimism is now sitting at net 39%, a significant fall of 15pp from 54% in Q2 of 2018, and the weakest score since Q4 2016.

Economic uncertainty is identified by business leaders as the biggest risk, peaking at 50%, a rise of 22pp from Q2 2018. This rise can be partly attributed to geopolitical tensions such as the US/China trade war and the upsurge of populist sentiment in many major western economies such as Italy and Spain. 

European sentiment has dropped 18pp to 28% since Q2 2018, and in the UK, optimism has plummeted to 9% as the spectre of Brexit looms large. Revenue expectations are in sharp decline at net 41%, down from net 59% and profitability expectations also took a hit, down globally at net 39%, a decrease of 9pp.

However, it’s not all bad news and despite the spike in uncertainty, over 60% of respondents were either optimistic or very optimistic about the future. This is reflected in export expectations with only 11% expecting a decrease and 84% of leaders expecting revenues to either stay the same or increase.

Despite the ominous global outlook and slowdown in GDP growth for many advanced economies, emerging APAC and Latin American have broadly bucked the prevailing gloom. For example, optimism in emerging APAC is at 57%, reflective of the increasing regional economic integration and collaboration between south-east Asian countries and a reducing reliance on trade with China whose economic slowdown is beginning to have knock on effects.

Alessandro Dragonetti, Managing Partner at Bernoni Grant Thornton declared: “the instability characterising the overall political situation remains and is also influencing the financial markets, particularly volatile in the last few months. Nonetheless, the IMF forecasts of a global economic growth of 3.5% in 2019 are confirmed and this makes business leaders optimistic that their businesses will grow accordingly. Despite increasing down side risk, economic fundamentals remain strong and opportunities exist.”

Traditionally, in times of economic uncertainty, additional expenditure and investment seems counter-intuitive and many businesses tend to shore up their operations and significantly reduce or cease investment.

“However”, Dragonetti continues, “this is the right time to invest in the future: interest rates are still low and so will remain till the end of the year. Therefore, businesses meaning to implement growth or internationalisation plans should take the opportunity to act while the favourable cyclical conditions last, with a focus on new technologies”.