Optimism has reached an all-time high

• Global optimism reaches net 61% in Q1, the highest in 15 years of research
• Strong increases in optimism in EU (+12pp) and North America (+7pp) in Q1 
• Optimism in Greece reaches positive territory (net 6%) for the first time in three years
• However, global investment has not increased in step with the surge in optimism. Businesses can do more now to take advantage of opportunities

Global optimism in the economic outlook is at an all-time high, according to global research from Grant Thornton’s International Business Report (IBR). The findings reveal that the sharpest increases in optimism for the coming 12 months are in Europe and North America, although in all regions levels remain historically healthy. Concerns over economic uncertainty have also eased. With GDP growth marching in step in most regions, Grant Thornton urges businesses to act now to identify opportunities to invest for future success.

The IBR finds that in Q1 2018, global business optimism stands at net 61% - the highest figure recorded in 15 years of research. Some of the most striking increases come in the developed economies of North America (up 7pp in Q1) and the EU (up 12pp). Confidence among US firms is at an all-time high of net 89%. In Europe, French business optimism is at new heights (net 75%) and the UK is at its most optimistic (net 31%) since it voted to leave the EU. Confidence is broad-based; in Greece, business optimism sits in positive territory (net 6%) for the first time in three years.

Across South East Asia, optimism has risen to net 61%. This is the highest figure in seven years. Elsewhere in Asia, however, China (-13pp) and Japan (-11pp) record dips in optimism. In addition, in Latin America optimism is down 10pp, to net 25%. However, even in these regions, optimism levels compare favourably with those in recent years.

Francesca Lagerberg, Global Leader Network Development at Grant Thornton, commented:

“Businesses report healthy and widespread levels of optimism. This is a welcome indication that the global economic recovery is finally broad based. We haven’t seen such high optimism levels for some time, not least in Spain, Italy and Greece. Why is business optimism so high? A likely factor is that globally, the economic fundamentals are strong. The strongest they have been since the financial crisis. GDP growth in most regions is growing. We are seeing a broad-based and inclusive spell of economic growth across markets.

“As the world’s largest economy, new levels of optimism in the US is a significant contributor to the global picture. Its business community has recently welcomed tax reforms and that will positively impact sentiment for the coming 12 months.

“The dip in optimism in China and Japan hardly represents confidence in freefall. But with rhetoric around trade ratcheting up between West and East, it will be telling to see how businesses respond over the next quarter. Most take the view that a fully blown ‘trade war’ will be averted given the risks on all sides, but uncertainty is never welcome. Most business leaders will want to see clarity sooner rather than later.”

The breadth of business optimism around the world is evident in Grant Thornton’s findings. The IBR finds record levels of optimism in Nigeria (net 84%) in Q1, and a turnaround in South Africa – up to net 78%, from net -18% in Q4 2017. Elsewhere, Turkish business optimism is up 30pp to net 20%, and Malaysian business confidence is up from net 6% to net 28% - the highest since the third quarter of 2014.

‘Time is now’ to increase investment

The IBR reveals that despite high levels of optimism, investment in research and machinery is not increasing in step. Though expectations for investment in new buildings, plant and machinery, and research and development (R&D) have increased slightly in southern Europe (up on the previous quarter by 5pp, 3pp and 1pp respectively), overall investment levels have slipped. Global plans to invest more in plant & machinery are down 2pp to net 34% in Q1, plans to increase R&D spend are down 3pp, and expectations of increased investment in new buildings remain steady for the third consecutive quarter.

Francesca Lagerberg added:
“The global economy is firing more strongly than it has in many years. Economic predictions are positive for the short to medium term. However, history tells us that growth tends to come in cycles, with 2018 being the high point in this case. Interest rates remain low but are projected to rise over the next two years. This means the window for cheap financing is closing and businesses may want to borrow now if they’re thinking of investing in 2019 or 2020. Now represents a window of opportunity to invest in the future.

“Investing more in R&D, or new technologies, needn’t mean that workers’ wages suffer. We are undergoing fundamental change to business on many fronts, from automation to big data to the gig economy. The future of business will require engaging with workers to make the most of the opportunities which emerge.

“Businesses that balance investing in infrastructure and ideas with rewarding and empowering workers will stand the best chance of reaping the benefits during the good times. And of staying resilient when economic conditions inevitably change.”

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Notes to editors:
The Grant Thornton International Business Report (IBR), launched in 1992 initially in nine European countries, now provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies.

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. Fieldwork is undertaken on a quarterly basis, primarily by telephone. IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with more than 2,500 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted in February and March 2018.

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