Business confidence across emerging Asia Pacific has risen for the third straight quarter, according to the Grant Thornton International Business Report (IBR), a quarterly global survey of 2,580 business leaders. China showed the biggest improvement however the recent volatility in Chinese shares would indicate this optimism will be prone to volatility. Generally business leaders across the region remain buoyant about growth prospects.

Business optimism in emerging Asia Pacific rose from 43% in Q1 to 52% in Q2, driven by a rise of 12 percentage points in China (46%). Elsewhere, India (85%), Philippines (78%) and Indonesia (60%) fell back slightly, although all remain in the global top ten.

In Thailand business optimism declined from 36 in the previous quarter to 10 in Q2. Affecting this pessimism during the quarter were immediate issues around the fishing industry, the Thai aviation industry, potential drought in the central region, and the slowing economies of major trading partners. In this regard business leaders in Thailand cited a lack of growth initiatives as a major source of concern.

Andrew McBean, Partner at Grant Thornton in Thailand and specialist in ASEAN markets commented:

“Rising sentiment in China should be good for the rest of the region if the markets can find stability, especially if Chinese consumers start demanding more imports as the economy rebalances. China is also looking for places out of China to invest their money and Thailand may benefit from this. India has enacted some encouraging reforms but more needs to be done in terms of job creation if it is to benefit from its demographic dividend. Indonesia too has benefitted from falling oil prices but much of its infrastructure remains deficient, hindering business growth.”

“In Thailand we are struggling to find many reasons for optimism at the moment. The government’s focus is more towards stability over prosperity however it could be argued that this focus has at least arrested severe economic turbulence in recent years and they are trying to deal with significant systemic issues which had not been tackled for many years. The tumbling global commodity prices have hit the outlook for Malaysia, which is one of the world's largest suppliers of liquefied natural gas.”

A shortage of skilled workers remains a problem across the region. Just over a third of businesses leaders cite a lack of talent as a constraint on their growth prospects (36%), well above the global average (29%). Businesses in India (64%) and Philippines (44%) are particularly concerned.

Andrew added:

“Demographics have a big part to play in the outlook for the region. China is facing an ageing population and a slowdown in the migration of workers to cities. India's population is relatively young but businesses are complaining about a lack of skills which is a worry. Thailand particularly is running at very close to zero unemployment and has a rapidly aging population so we need to get workers from abroad however our immigration policies are not aligned with this need. We can expect some real challenges in the medium term because of this.”

Global business optimism climbed 12 percentage points to net 45% in Q2 with many of the world's largest economies posting significant improvements. Optimism in the United States, where businesses have been adding jobs rapidly, rose 11pp to 54%, and in Japan from -17% to 8%. In Europe, business confidence rose for the fourth straight quarter to 58%.

Andrew concluded:

“Despite some uncertainty over the future of Greece in the eurozone and some political uncertainty, business leaders globally are increasingly confident in the economic outlook. With so many large economies reporting increased confidence, the global economy is clearly headed in the right direction. Business growth feeds on confidence - the confidence to make an acquisition, to expand abroad, to hire new people - and we'll be watching closely to see if this momentum can be maintained in the face of some relatively severe geopolitical headwinds.”