Mood Darkens As Euro-gloom Deepens

July 09, 2012 /

Global business confidence waned in June, according to the latest Markit Global Business Outlook Survey of
11,000 companies worldwide, but post-crisis low seen late last year.

The percentage of companies expecting their business activity to rise over the next 12 months outnumbered
those anticipating a decline by a healthy margin of 37 percent in June, pointing to ongoing global economic
expansion. However, the latest survey signaled deterioration in optimism compared to February, when the number of optimists exceeded pessimists by 44%, pointing to a weaker growth outlook than had been anticipated earlier in the year. Companies are nevertheless more optimistic than the post-crisis low seen back in ctober, when optimists exceeded pessimists by just 32v percent.

The Eurozone continued to see particularly weak business optimism in June. Confidence had revived earlier this year, but the survey revealed that business sentiment has again suffered a set-back. Both manufacturers and service providers in the single currency area became less optimistic compared to February, meaning the overall level of optimism was only low.

Confidence fell especially sharply in Germany, and falls were also seen in Italy and Spain. France, in contrast, saw businesses grow slightly more upbeat than in February. However, all four main euro countries
saw similarly weak overall levels of business optimism compared to the global average.

Business confidence relating to activity in the year ahead also slipped in the US and UK compared to the
February survey, though in both cases remained above the lows seen late last year and well above sentiment in Japan and all major Eurozone nations. US companies remained particularly upbeat about business prospects for the year ahead.

Japan bucked the trend among the four largest developed economies, with companies slightly more confident than seen in the February survey. However, while Japanese service providers became the most upbeat since June 2010, manufacturers were the least optimistic for almost three years.

Business optimism fell slightly in China and Brazil compared to earlier in the year, while a far more
pronounced slide was seen in Russia, where optimism was both the lowest among the four BRIC economies and the lowest seen since the survey began, India, in contrast, saw a slight upturn in optimism compared to February.

Companies have adjusted their employment plans for the year ahead to match less positive views on business activity, business revenues and corporate profits compared to expectations seen earlier this year.
Just 17 percent more companies expect to take on extra staff over the next 12 months than expect to cut
staff numbers, down from +19 percent in February. Manufacturers were more downbeat regarding employment than service providers.

Employment trends varied markedly by country, with Eurozone employers notable in expecting a net fall in
employment over the coming year (the first such expected decline since October 2009). Steep declines are expected in Spain and Italy, while recruitment intentions also weakened markedly in Germany and France.

Weaker employment growth was also signalled for the US, the UK and China. Intentions were unchanged in
Japan and Brazil compared to February, while they improved in India.

Capital expenditure plans were unchanged on average compared to February, suggesting companies’ investment plans have been largely unaffected by dimmer outlook. An upturn in the service sector offset a downturn in investment plans in manufacturing.

By region, capex is set to fall in the Eurozone, reflecting downturns in Spain and, to a lesser extent, Italy. In contrast, capex plans rose to a new high for the US survey and a joint-high for Japan.

Expectations in relation to capex fell from earlier in the year in China, India and Russia, but held steadily in Brazil.

Expectations of input cost inflation fell to the lowest since the October 2009 survey, dropping in both manufacturing and services. Only Brazil saw an upturn in input cost expectations. Companies meanwhile expect the prices they charge for goods and services to show the smallest annual rise since the October 2010 survey. Falling prices were even signaled in Japan and Spain.

Chris Williamson, Chief Economist at Markit, said: “Businesses globally have scaled back their expectations for business activity, revenues and profits growth compared to earlier in the year, which has in turn led to a deterioration in the employment outlook.

“The recent deterioration of business optimism and employment intentions is clearly centred on the Eurozone and Germany in particular, where confidence has fallen to levels similar to the downbeat moods evident in France, Spain and Italy. French companies were notable in seeing improved confidence, perhaps due to the new government’s promised focus on reviving economic growth.

“The survey provided some rays of hope, however, not least because global business optimism remained
higher than the post-crisis low seen late last year. Furthermore, although recruitment intentions have
deteriorated capital investment have edged higher to reach a twoyear peak.”

 

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