Global business confidence collapses to five-year low

24th November 2014

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Global business confidence plummeted to its worst level in five years during October as hiring and investment plans among companies collapsed to post crisis lows.

The Markit Global Business Outlook Survey, which looks at expectations for the year ahead across 6,100 companies, showed optimism falling sharply over the month to its lowest level since the research began in 2009.

Chris Williamson, chief economist at Markit, said: “Clouds are gathering over the global economic outlook, presenting the darkest picture seen since the global financial crisis.

“Companies’ hiring and investment intentions have both fallen to post-crisis lows alongside the bleakest outlook for future business activity seen over the past five years.”

Looking at the world’s largest developed countries, business optimism fell across the board.

The surveys highlighted a growing list of concerns and key threats included fears of a worsening global economic climate, and notably a renewed downturn in the Eurozone, the prospect of higher interest rates in countries such as the UK and US next year, geopolitical risk emanating from crises in Ukraine and the Middle East, plus growing political uncertainty in many countries, notably the US, UK and Japan.

The study found that the number of companies expecting activity to be higher in a year’s time exceeded the number expecting a decline by some 28% however this net balance had stood at 39% in the summer.

Optimism in manufacturing fell to its lowest since mid-2013 but remained ahead of that seen in services, where confidence about the outlook slumped to the lowest in the survey’s five-year history.

But of all major countries surveyed, UK companies remained the most upbeat about the year ahead, despite expectations about future activity levels dropping to the lowest since June of last year in both manufacturing and services sectors.

However, the most striking development was the extent of the downturn in the US, where optimism hit a new survey low, with the service sector seeing a particularly dramatic decline.

Optimism in the US nevertheless remained more buoyant than seen in the Eurozone and Japan, the latter suffering from especially weak confidence relative to other major countries as optimism slipped to the lowest for two years.

Optimism fell in the Eurozone to the weakest since June of last year. Relatively buoyant levels of business confidence in Spain and Italy were nonetheless the lowest recorded since this time last year and the start of 2014 respectively. Confidence was far lower in Germany and especially France by comparison, with both ‘core’ countries seeing the lowest levels of optimism since June of last year.

Business expectations across the main emerging markets fell on average to the lowest seen in the survey’s five-year history, though trends varied by country.

Employment and capacity expansion

Global hiring intentions slid to within a whisker of the all-time low seen in June of last year, deteriorating in the US, Japan, the UK, the Eurozone, Russia and Brazil. US hiring intentions were notable in sliding to a new survey low. UK firms were the most upbeat about employment plans among major economies, while French firms were the most downbeat, France being the only country where a net drop in employment is indicated for the year ahead.

Williamson added: “Inflationary pressures are expected to ease further, meaning central banks will have leeway to keep policy looser for longer to help support economic growth, especially as the risk of deflation remains a major worry.

“Of greatest concern is the slide in business optimism and expansion plans in the US to the weakest seen over the past five years. US growth therefore looks likely to have peaked over the summer months, with a slowing trend signalled for coming months.”

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