Business optimism across Asia Pacific is down from its recent peak in the first part of 2018, according to global research from Grant Thornton’s International Business Report (IBR). However, the findings also reveal a split in outlook. Optimism is down in the established economies of China and Japan, while it is up in the emerging ASEAN region. At a global level, business optimism stands at an all-time high during the first quarter of this year.
The IBR finds a dip in business optimism across Asia Pacific in Q1 2018, down 6pp to net 52%. This bucks the wider global trend, with Asia Pacific and Latin America the only major regions to see optimism drop over this period. However, a notable split emerges in the way the emerging and developed APAC economies have started the year.
In China, business optimism is down from an all-time high of net 78% in Q4 to 65% in Q1. In Japan, businesses reached positive territory for optimism in Q4 (net 3%) but it has slipped back to net -8%. However, across the ASEAN group of countries, economic optimism is up to net 61% in Q1. This is the joint highest quarterly figure ever recorded. Substantial increases in optimism come in Malaysia (up 22pp in Q1), Singapore (up 12pp) and Thailand (up 6pp).
Globally, business optimism is at net 61% in Q1 - the highest figure recorded in 15 years of research.
Rodger Flynn, CEO at Grant Thornton, commented:
“The drop in optimism across Asia Pacific contrasts with most other global regions. It is striking that the major contributors to this dip are China and Japan. That said, their confidence levels still compare favourably with those in recent years.
“In Japan, a strengthening yen will have dampened the mood somewhat. In China, the continued rebalancing of its economy, along with tough trade rhetoric with the US, are likely contributing factors. ASEAN businesses, on the other hand, are buoyant. The continued transfer of low-cost manufacturing sectors from China to neighbouring countries is driving business confidence.
“A talking point for the whole region, though, is the rhetoric around import taxes with the US ratcheting up. It will be telling to see how businesses respond over the next quarter. Most take the view that the risk of a fully blown ‘trade war’ has eased, but uncertainty is never welcome. Most business leaders will want to see clarity sooner rather than later.”
The IBR reveals that the proportion of Chinese businesses who expect exports to increase over the next year his down to net 25% in Q1, from net 33% in Q4. In Japan the figure is down to net 9% from net 12%. As a result, the Asia Pacific region slips 2pp to net 20%.
At the same time, there is a fall in expectations for increased profitability (down 7pp to net 40%) across Asia Pacific in Q1. Meanwhile, businesses report increased concerns that economic uncertainty will act as a constraint on growth (up 4pp to 42%).