Business Barometer Shows Brightening Outlook

Twice as many business leaders say that the world economy is going to improve in the next six months than think it is going to get worse, according to the FT/Economist global business barometer.

Trader at London Stock Exchange, England.
Trader at London Stock Exchange, England.

The bullish sentiment expressed by international executives was moderated by fears about the effect of the eurozone crisis, as well as the impact of rising oil and commodity prices.

The new quarterly survey of more than 1,500 executives, conducted for The Economist and the Financial Times by the Economist Intelligence Unit, showed 38 percent thought the global economy would pick up in the next six months and 19 per cent thought it would deteriorate, giving a balance of 19 percent who were optimistic about the future.

That compares with a balance of almost 40 percent of executives who foresaw a worsening of the global economy in a similar survey in September 2008, during the early stages of the financial crisis.

Agribusiness, energy and manufacturing executives seemed to be the most hopeful about the future, while transport, health and pharmaceuticals and construction were the most downbeat sectors.

While the business environment appears relatively good in the near future, nearly two-thirds of executives were worried the worst was yet to come in the eurozone’s sovereign debt crisis, indicating a low level of confidence that official efforts have come close to delivering a solution.

Businesses also appeared concerned about high inflation and the prospect of interest rate rises by central banks round the world.

Rising oil prices, higher interest rates and increases in other commodity prices were ranked as the top three concerns of businesses in the next six months, with about 40 percent of executives concerned about each.

Business people seemed to be confident about the performance of their own companies, with many saying they could perform better than their industry as a whole.

A balance of 25 percent of executives thought their industry would see improving conditions in the next six months, while 50 percent thought their own companies would do better.

The discrepancy between executives’ views of the state of their industry was greatest in consumer goods, where a modest balance of 14 percent thought the sector would see conditions improve but 61 per cent saw better times at their own companies.

The outlook for employment was encouraging, with only 13 percent of executives expecting job cuts in the next year and stronger hiring expected in North America.

But the survey adds to the sense US companies are holding on to large piles of cash instead of committing capital to expand their businesses.

Whereas less than a quarter of companies outside North America said they would sit on surplus cash rather than pay it out to shareholders or use it for acquisitions in the next year, in North America a third of companies said they planned to retain extra cash – the highest proportion for any region of the world.