IBR Q4/2014

The Q4 findings of the Grant Thornton International Business Report (IBR) show a significant decline in business optimism in Thailand and ASEAN countries from the previous quarter. Although a decrease in optimism was a common finding amongst most of those surveyed, Thailand showed a considerable difference with a 44% point drop from 71% in Q3 to 27% in Q4. This is a much larger drop that the global change (43% to 35%) and deeper than the ASEAN drop, which itself was fairly sharp (56% to 23%).

Ian Pascoe, Managing Partner for Grant Thornton, commented, “As we predicted in our annual International Business Report on the 19th November, 2014, given the complicated year for Thailand, a significant decrease in business optimism in the fourth quarter was to be expected. After an uncertain first half, many accurately predicted the rise of optimism in Q3. While that saw the emergence of a receptiveness to new and exciting business opportunities, after such a sustained period of uncertainty, businesses are now practising a degree of caution for the coming year. This would seem well placed given the global challenges we are facing in 2015. The headwinds for Thailand continue to be considerably stronger than the tailwinds this year however our strongest concerns for the year ahead come from global issues.”

The IBR shows that global business optimism for 2014 stood at an average of 41% compared to 28% in 2013 and just 12% in 2012. But in Q4, global optimism dropped from 43% to 35%, driven by steep falls in the US (down 10pp to 59%), China (down 30pp to 25%) and Japan (down 12pp to -12%).

Ian continued, “We saw the highest levels of business confidence since 2007 over the past 12 months, but looking ahead, there are a number of potential flashpoints which are threatening global economic stability. The volatility in the oil price is of particular concern to global markets: prices have dropped to five-year lows in December and while cheaper oil will benefit net importers and industries such as manufacturing and transport, it is already spelling trouble for energy companies and key markets such as Russia and the Middle East.”

“The threat of recession and deflation in the eurozone and Japan is also a massive concern. Shinzo Abe has won a new four-year mandate to try and kickstart the Japanese economy but the first round of his Abenomics programme can hardly be viewed as a success. Meanwhile, the eurozone has barely grown in five years, unemployment remains stubbornly high and a change of party in Greece could reignite the sovereign debt crisis. Add in the slowdown in China, which is dampening demand for natural resources from Latin America and exports from Southeast Asia, and it’s clear that the outlook for 2015 is far from stable.”

This uncertainty is weighing heavily on business growth prospects. Both revenue growth - down 13pp (from 56% to 43%) - and profit growth - down 11pp (from 43% to 32%) - prospects have both fallen globally. In both China (37%) and the US (35%), revenue growth expectations dropped 33pp over the quarter, while Thailand dropped from 69% to 51%. Profit growth expectations in Thailand (down 38pp to 27%), China (down 33pp to 13%) and the US (down 23pp to 34%) have seen similar falls. That said, European businesses are actually feeling more positive about growth now compared to the previous three months with profitability expectations up from 32% to 40%.

Ian added: “The prevailing uncertainty is making life tough for businesses, forcing them to delay decisions over investment in the future growth of their operations. Given the turbulent state of global markets this is understandable. They remain positive about their expansion prospects but certainly less so than three months ago.”

“Chinese exports continue to fall as global markets rebalance, which could have major consequences for the global economy. Stronger global demand may boost exports next year, but flagging property investment may largely mitigate this. Meanwhile, if the US Federal Reserve finally raises interest rates this year, it could have major knock-on effects across the world, especially in a number of emerging markets.”

“Business confidence is a key indicator of future economic performance. The large rise in global optimism in 2014 came as a pleasant surprise after a couple of tough years but the dip in the last three months suggests that businesses around the globe see trouble on the horizon in 2015.”