A global survey by Grant Thornton of businesses in 36 economies reveals an uplift in the proportion of businesses worldwide expecting increased revenues over the coming 12 months. By contrast, growth in global export expectations continues to be slow, indicating that revenues are dependent on domestic consumer spending power. This power is now under threat from increased political instability, recovering oil prices and reduced plans to offer pay increases. However, the latest Grant Thornton International Business report survey (IBR) also finds that with a lack of skilled workers a major constraint, the wage freeze may not last for long.
The IBR shows businesses across the world reporting increased expectations for increased revenue (46%, +11pp), selling prices (21%, +4pp) and profitability (36%, +6pp) for the next 12 months in Q2 2016.
However, export plans do not follow the same trajectory. Growth in global export expectations for the coming year continues to be weak (15%, +2pp), particularly across Latin America (18%, +1pp), North America (9%, +1pp) and the European Union (20%, -2pp). At the same time, global business expectations for above inflation pay increases have fallen this quarter (15%, -4pp), noticeably within Latin America (6%, -6pp), North America (19%, -1pp) and the EU (16%, -9pp).
Across many regions there appears to be a disconnect between revenue expectations and export plans. Export expectations continue to disappoint, especially in Europe and the Americas, so it would seem that many companies are excessively dependent on domestic consumer spending for growth.
Recently, consumers within developed economies in particular have benefitted from low energy prices, strong currencies and low inflation. But with wage growth slowing, oil prices recovering and a climate of political uncertainty including from the UK’s vote to leave the EU, consumer confidence could potentially be hit over the coming year.
This is a precarious situation for the business community. Domestic demand can boost revenues only so far; in today’s world, overseas trade is critical to boost further growth. With another round of talks over an EU-US trade agreement expected this week, it is important for businesses that deals such as these make it is easier for businesses to buy and sell internationally. Otherwise, firms may be too inward-looking and over-reliant on domestic markets which could put their long-term growth and sustainability at risk.
The IBR also reveals that a lack of skilled workers remains the biggest growth constraint for businesses worldwide (30%, +2pp). Countries across the developed Asia-Pacific (APAC) region and the UK are particularly concerned about skills shortages (59%, +15pp and 34%, +8pp respectively).
The findings come amid a new bout of uncertainty caused by the UK’s decision to leave the European Union at the end of June.
The ultimate impact of the “Brexit” vote on the global business community is still unknown. While there is short term uncertainty and market volatility, central banks are taking steps to support monetary and fiscal stability. Our member firms are in conversation with their clients about taking a calm and considered approach, and we are monitoring the progress of the exit process. Not enough is yet known to inform many of the biggest decisions facing businesses with European operations.
When thinking about the threats and opportunities a Brexit could create, and planning how to create and protect value, it may be worth considering any short, medium and long term implications for issues like people and talent, exports and imports and the terms of any access to the Single Market, trading standards and regulation, strategic ambitions, financing, risk, operations and protecting investment. This will help guard against unexpected shocks which could derail long-term growth prospects.
For further information please contact:
Andrew Brosnan, insight and thought leadership manager, GTIL.