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Our latest International Business Report (IBR) research reveals that global business optimism has fallen to a three-year low in the first quarter of 2016. A potent combination of fragile financial markets, volatility in oil prices, concerns over terrorist attacks and regional issues including the prospect of a Brexit and the US Presidential race means the majority of regions have reported uncertainty in their economic outlook. Expectations for revenue, exports and R&D investment have also fallen. We urge businesses to look beyond the current uncertainty and continue to invest for future growth.
Our research reveals that global business optimism fell to net 26% in Q1, the lowest quarterly figure since Q4 2012. The trend is evident across the globe, including the G7 (down 7 percentage points in Q1), EU (down 4pp), North America (down 6pp), Latin America (down 16pp) and Asia Pacific (down 10pp).
The second consecutive quarterly fall in optimism among businesses in the US (50% in Q4 to 46% in Q1) appears to be impacting the sentiment in neighbours Canada (down 41pp) and Mexico (down 32pp) this quarter, while the fall in the UK (73% to 44%) is the largest of any EU member state.
The findings come despite many fundamentals in the global economy remaining steady since the turn of the year. Official figures show that unemployment rates have continued to nudge down in many major economies including the US and Germany, while retail figures also remain strong across Europe and North America.
Businesses feel caught in a tangled web of pressures. The risk of a Brexit, uncertainty over the US presidential election, fears about terrorism, volatility in financial markets or the fall in oil prices present challenges individually, but when combined have a dizzying effect. This is as sober a measure of business sentiment we’ve seen since the global economy returned to post-crisis growth. However, we’ve not seen a major economic jolt in the first quarter which could have triggered this drop in optimism.
There is a risk we could talk ourselves into a downturn when in fact, moments like this present longer-term opportunities. A common feature in the stories of the most dynamic and successful firms is that they don’t let the noise from these external factors out of their control distract them from looking at their own operations, and they continue to invest in the pursuit of growth years down the line. That may appear easier said than done at the moment, but without investment now, businesses will find themselves behind the curve when conditions overhead improve.
The IBR reveals that 35% of businesses globally expect to increase revenue over the next 12 months – the lowest figure since Q2 2012. At the same time, just 13% of businesses expect to export more over the coming year, which is the lowest figure recorded since we began surveying quarterly in 2010.The same is true of Research & Development (R&D) plans; just 18% of firms globally plan to boost R&D spend in the next 12 months.
However, our figures do reveal a glimmer of hope in the shape of consumer spending power. With inflation rates low, nearly one in five (19%) firms globally plan to award employees an above-inflation pay rise this year – the highest figure ever recorded.
For businesses navigating their way through choppy waters, the priority should be sticking to their intended course. Focusing on R&D may seem less attractive when revenue and export targets look less achievable, but in fact this is exactly the time when trusting your instinct and making those investments can ultimately reap the biggest rewards.