Before Greece’s 'No' vote on Sunday, business optimism in Europe had surged ahead to its highest level in five years, despite the ongoing uncertainty over the future of Greece and its continued membership of the single currency. According to the Grant Thornton International Business Report (IBR) [ 743 kb ], businesses across Europe and beyond are looking past the problems in Greece to improving growth expectations.
Business optimism around the world jumped in the last quarter, from net 33% to 45%. Confidence in the European Union (EU) increased by 20 percentage points over the quarter to reach 58%, beating pre-crisis highs. Optimism in the eurozone leapt from 34% to 54% over the same period. Germany is now the most optimistic economy in the IBR at 92% (Q1= 59%). Businesses in the UK, Spain, France and Italy also posted significant improvements in their outlook.
Francesca Lagerberg, global leader for tax services at Grant Thornton, commented: “Business confidence in Europe has proved extremely resilient in the first half of 2015. In a period where financial markets and politicians have once again been spooked by the Greek situation, businesses appear to be looking past the issue. Supported by strong revenue and profit growth expectations, businesses are forecasting a strong 12 months. I think that despite the outcome of the referendum in Greece, European businesses will remain optimistic.
No doubt, business leaders feel they’ve seen this before and that there’s still a way to go before it’s resolved. In the meantime, Europe’s banks have increased capital buffers and are better placed to cope with a Grexit. Other previously troubled economies like Ireland, Spain, and Portugal are growing, and Greece accounts for less than 2% of eurozone GDP. However, business leaders must ensure their contingency plans are robust to avoid being caught out if a Greek default causes an unplanned exit from the eurozone. A lot of negotiation remains between Greece, the ECB, and the IMF.
Optimism in Europe is underpinned by exceptional levels of expectation on revenues: net 52% of businesses expect growth over the next 12 months, the highest since 2008. Germany (91%) leads the way, supported by France, Spain and Ireland, all of which reported increases in expectations. There is also good news for workers in Europe, with net 70% of companies planning to offer their employees pay rises in the next year, up from 55% in the previous quarter.
Francesca Lagerberg continued: “Rising revenue and profitability growth are very welcome signs for the regional economy, particularly given ongoing political uncertainty, and increasing salaries are a sure sign that businesses believe the recovery has truly taken hold. And of course, there is a virtuous cycle here: higher salaries should boost consumption, further boosting business growth.
Europe is not alone in its sentiment that the next 12 months will be good for business. The three largest economies in the world saw sharp upswings in optimism: the US (up 11pp to 54%), China (up 8pp to 46%), and Japan (up 25pp to 8%) all report an uplift in optimism levels. However, the picture is not universally positive. Brazil, once a leading emerging economy, is experiencing a rapid deterioration in confidence. Optimism has fallen 56pp to -24%, the biggest negative swing among major economies, and revenue growth expectations have dropped by 29pp to 28%.
Francesca Lagerberg concluded: “With so many large economies reporting increased confidence, the global economy is clearly headed in the right direction. Business growth feeds on confidence - the confidence to make an acquisition, to expand abroad, to hire new people - and we'll be watching closely to see if this momentum can be maintained in the face of some relatively severe geopolitical headwinds."
View the global optimism summary infographic [ 743 kb ]
