Study Finds Business Growth Prospects Improving

Profitability, hiring and revenue expectations among business leaders in mature economies soared in first quarter 2015, according to the latest data from the Grant Thornton International Business Report (IBR), a survey of more than 2,500 business leaders in 36 countries.

In first quarter 2015, U.S. profitability expectations improved 34 percentage points to net 68 percent of business leaders expecting to see profits climb in the next year. U.S. hiring expectations increased to net 56 percent, up 25 percentage points from last quarter, while revenue expectations increased to a net balance of 71 percent, a significant increase from net 35 percent the previous quarter. Revenue expectations in the United Kingdom increased 2 percentage points to net 69 percent, while U.K. hiring expectations increased to net 50 percent, up from net 44 percent last quarter. In addition, revenue expectations in Germany increased 9 percentage points to a net balance of 67 percent, while profitability expectations in Spain and the Netherlands increased to net 50 percent, up from net 35 percent and net 46 percent, respectively.

While business growth prospects in developed nations rose in first quarter 2015, optimism for the economic outlook among U.S. business leaders dropped 16 percentage points to a net balance of 43 percent. Globally, just net 33 percent of businesses are optimistic, down another 2 percentage points from the previous quarter. However, somewhat surprisingly, IBR data highlights eurozone confidence rising toward pre-crisis levels. There, optimism spiked to a net balance of 34 percent, a significant increase from net 13 percent last quarter. This marks the first time in 15 quarters eurozone business leaders are more bullish than the global average. The most ambitious businesses are in Ireland (net 92 percent), the Netherlands (net 78 percent), Germany (net 59 percent) and Spain (net 52 percent).

“Business leaders are seemingly more confident about areas of business performance and stability they can control within their own operations versus the direction of their respective economies,” said Stephen Chipman, senior vice chair at Grant Thornton LLP.

The dollar’s sharp rise since the middle of last year has very significant implications for trade flows and impacts corporations and governments borrowing in dollars. The International Monetary Fund has previously warned about the risks posed by high levels of corporate debt in many emerging markets when interest rates are rising. The U.S. currency is up a little more than 10 percent against both the euro and the Brazilian Real in the past quarter alone. With the rise in the dollar, outlook for investment is weak. In first quarter 2015, U.S. companies’ plans to invest in research and development remained stagnant at net 37 percent. Companies’ plans to invest in new buildings in the next 12 months decreased to net 23 percent, down from net 39 percent last quarter, while plans to invest in plants and machinery decreased 13 percentage points to net 24 percent.

“The strong U.S. dollar poses a serious threat to the global economy. It’s clear that U.S. business leaders will require more certainty in the macro environment before making significant investment decisions,” added Chipman.

IBR data also reveals that there is wide dispersion in revenue expectations across the manufacturing, technology and retail sectors. More than half (net 53 percent) of manufacturing leaders expect their industry’s revenue to climb in the next year, up from net 43 percent last quarter. Revenue expectations in the technology sector increased to net 77 percent, up from net 42 percent the previous quarter. Net 52 percent of retail leaders expect their industry’s revenue to climb in the next year, a slight increase from net 51 percent last quarter.