Global business optimism increased over the last three months driven by improved revenue and demand prospects, according to the Grant Thornton International Business Report, a quarterly survey of 3,000 businesses in 40 countries. However, despite the pickup, businesses remain less optimistic than they were this time last year.
The improvement is most apparent in the G7 economies where business optimism rose by 28 percentage points over the past three months, climbing from -12 per cent in the fourth quarter of 2011 to 16 per cent in the first quarter of 2012 (meaning companies that are optimistic outnumber those that are pessimistic by sixteen percentage points).
The increase in optimism in the United States, where optimism increased by 45 percentage points, from just one per cent to 46 per cent, is a major factor.
In Canada, optimism increased to 51 per cent, up five points over the last quarter when it dipped to 46 per cent. Nevertheless, it has not rebounded to the high of 80 per cent seen in the second quarter of 2011.
Businesses in Japan (-53 per cent) and Europe (-four per cent) remain pessimistic, though both have seen improvements over the last quarter.
Numbers from the past 12 months tell a more sobering story, said Grant Thornton. This time last year, optimism in the G7 economies stood at 27 per cent, 11 percentage points higher than the first quarter of 2012. Only Japan and the United States have levels of business optimism recovered to where they were in the first quarter of 2011.
"It's definitely encouraging to see that the outlook of many businesses has improved over the past three months, particularly in Canada. However, reflecting on the last year or so and, in particular the results from this time last year, we can see how much global growth prospects remain delicately balanced and how difficult the last 12 months have been around the world," says Bill Brushett, national client services leader at Grant Thornton in Canada.
Businesses in mature markets are much more positive about growing their business over the next 12 months, found the report. Expectations for increasing revenues (up nine percentage points) and profits (up eight percentage points) in the G7 have grown robustly over the past quarter, while eight per cent fewer businesses are citing a lack of demand as a constraint on growth.
There are also signs of increasing business investment across the G7, with six per cent more businesses expecting to boost plant and machinery, and three per cent more planning investment in new buildings.
In Canada, 57 per cent expect to see revenues increase (up eight per cent over the last quarter) but only 18 per cent expect to invest in research and development. Further, a lack of skilled workers continues to be the biggest constraint to growth, cited by 38 per cent of businesses in Canada.
"It's great to see that Canadian business have reversed the dip in optimism but, in order to continue to grow, Canada needs to focus on core areas such as access to a skilled workforce and long-term investment in (research and development),” said Brushett. “Seeing momentum build in the recovery in the United States, borne out by brighter GDP and employment data, bodes well for our economy, particularly in manufacturing and distribution."
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