I was interviewed last week on CNN to discuss the continued strength of global business optimism uncovered by our Q2 IBR economic update. The interviewer was particularly interested in the reasons behind business confidence around the world reaching a record high since we started asking this question in 2003. So let’s take a look at what the survey is telling us.
While confidence is fairly strong across the globe, it’s advanced economies that are leading the way. Business optimism in North America reached 73% in Q2, its highest level since 2004; the European Union posted 43%, its highest since 2006, and a further signal that the region is starting to move beyond the sovereign debt crisis. The UK (80%) and Germany (79%) are particularly bullish about growth prospects. Overall, the G7 group of leading economies posted business optimism of 53%, another all-time high.
Confidence in emerging markets is slightly more subdued: net 36% of BRIC economy businesses are optimistic about the outlook over the next 12 months. Businesses in China (30%) remain circumspect about the growth trajectory of the economy. However, there were some good news stories here too with India (86%) climbing to the top of the global optimism rankings following the election of Narendra Modi, and South Africa (35%) bouncing back following a raft of poor economic data and continuing strikes.
The surge in optimism among business leaders is largely driven by their confidence in expanding internationally. A record 24% of businesses globally expect to increase exports in the next 12 months. While global trade saw a slight dip in the first quarter, business leaders remain optimistic about future growth in exports across many countries, including Australia, Canada, China, Germany, Italy, Spain, Greece, the UK, and the US. This highlights a broader trend of mid-sized businesses becoming more global, as they focus on expanding operations beyond their borders and tapping into new markets for demand.
The results indicate that companies are increasingly planning to ramp up their spending on research and development (R&D), possibly to stay competitive in the global market. By investing in R&D, business leaders aim to adapt their products and services to meet the demands of new consumer markets. Although some companies are still facing challenges and concerns about cash flow, higher investments in R&D would be a positive step for the global economy. It could spark higher optimism, foster more innovation, and drive increased trade, creating a virtuous cycle of growth and development.