Issue 4, 2012. August-September



Around the world, the year 2012 started with businesses confidence on a knife edge. Now, six months into the year, there is a glimmer of hope for the global economy as business investment picks up. GrantThorton's Nelson Petrosyan writes about the trend.

At the beginning of 2012 global business confidence was balancing on a knife edge, standing at net 0%, indicating a balance between those business leaders feeling optimistic about their economies and those feeling pessimistic.

The regional picture was, however, more nuanced. Optimism levels in the BRIC economies and in North America have shown significant improvement. However, at the global level this has been offset by a large drop in Europe where optimism in the eurozone fell to -16%.

Quite interestingly, while global business confidence stood at net 0%, Georgia's business optimism stood at 78%. Together with Peru, this was the highest business confidence index out of the 40 countries participating in the survey, representing over 80% of the world economy. The index mark for Georgia's optimism displays the business community's hope for continued development and sustainable economic growth. Looking at the overall chart by country, business optimism is also high in Brazil and the Philippines. Comparison with survey participant neighbouring economies shows that businesses also show optimism in Armenia (52%) and in Turkey (20%), while Russia's businesses indicated some pessimism (at -4%).

Now, let us see how the optimistic or pessimistic outlooks at the beginning of year have influenced the decision-making in business to date. The global survey suggests that businesses, especially in emerging markets, are taking a longer-term approach to growth by increasing levels of investment.

The proportion of businesses looking to increase investment in new buildings and plant & machinery has risen considerably over the past 18 months. Expenditure on research and development is also set to climb, further supporting evidence from the World Intellectual Property Organisation which recorded a growth in patent filings. Moreover, businesses are also investing more in their employees - 68% plan to offer pay rises over the next 12 months, compared with 51% in 2010.

By comparison, business expectations for revenues, profits and employment remain at or below levels observed 18 months ago. And the slowdown in the global economy is further highlighted by the sharp rise in the proportion of businesses in the eurozone, China and the US citing reduced demand as a constraint on expansion.

Global economic uncertainty is weighing on short-term business growth prospects. However, it is encouraging to see dynamic businesses willing to adopt bolder, long-term growth plans. This strategy is not about immediate returns in terms of revenues and profits, but rather about investing in their long-term growth and competitiveness. A regional breakdown of the IBR research reveals that businesses in emerging markets lead the way in investing for long-term growth - investment in research and development

With the eurozone still to work through its financial issues, and businesses in the US awaiting possible changes in policy following the November elections, it may take some time for the current economic uncertainty to lessen. In this climate, businesses in mature markets are sitting on trillions of dollars, wary of spending and hiring.

However, the results should act as a wake-up call to businesses in developed economies, because, while they are sitting on their cash, their emerging market counterparts are investing in their own futures. If such behaviour continues, they could find their competitiveness eroding as emerging economies put increasing resource behind research and innovation and equipment that will increase their productivity. Even in tough times, businesses need to be forward thinking, keep pace with their competitors and invest in the future of their companies.