The survey, compiled by research firm Markit on behalf of KPMG International, works on a net balance basis, with the percentage of respondents feeling more pessimistic about their company’s outlook in 12 months’ time deducted from the percentage feeling more optimistic about the future.
The net balance for global business activity in manufacturing stands at +50.9 (up from +42.9) while the equivalent figure in the services sector stands at +44 (down slightly from +46.5 last time but still strongly optimistic). This suggests a firm majority believe their businesses will be getting busier in the coming 12 months.
The outlook for improved business revenues is similarly healthy with a net balance of +42.5 in manufacturing (up from +37.4) and +37.9 in services (flattening out a touch from +40.7 last time). Optimism around profits is also holding up robustly at +35.3 in manufacturing (up from +32.1) and at +35.5 in services (from +36.2 last time).
Digging deeper into most of the key indicators, the percentage of respondents who predict no change in the coming year – and who thus have no impact on the net balance1 – tends to stand around 20-25 percent in manufacturing and around 30 percent in services. Of those who have a firm view one way or the other, optimists now tend to outnumber the pessimists by as much as four or five to one.
Commenting on the results, Alan Buckle, Global Head of Advisory at KPMG, said: “What we are seeing here is evidence of a properly robust recovery across numerous key markets which is set to run through until at least spring 2011. Admittedly, we are coming at this from a pretty low base in terms of the nadir which the survey numbers hit in late 2008. However, the extent to which the optimists now outweigh the pessimists is not something which can be easily dismissed. The results from the BRIC countries do tend to put the others – with the exception of the US – somewhat in the shade but even if you took out the BRIC numbers, you would still be looking at some respectably healthy confidence levels elsewhere.”
“So far, so good then. With only a few exceptions, the recession ended last year and the survey points to continued growth over the next twelve months. However, there are still concerns. In particular, over the course of the year, we need to see the recovery feed into employment and to kick-start investment spending - where intentions currently lag somewhat - before we can really sleep soundly.”
Looking at business activity expectations in manufacturing, the BRIC countries now boast a net balance of +63.4, with Brazil leading the way at a staggering +84.2. Only the US (at +65.7) comes near to matching the BRIC numbers. The European average is +43.4, with the UK the stand-out performer at +57.9. In the services sector, BRIC optimism runs at +58.3 and is matched by the US at +60.3 with Europe further back at +39.5. This time around, France leads the way for Europe, returning a net balance of +52.4.
The upward trend in optimism is now evident across the past three Outlook surveys. Confidence around business activity in the services sector hit an all-time low in October 2008 at -2.9 in Europe (indicating that the pessimists were in the majority) and +33.8 in BRIC. As for manufacturing, that dropped as low as -10.2 in Europe and +3.6 in BRIC in January 20092. What these record low figures do demonstrate however is how the BRIC countries were never as badly affected as their European counterparts and were able to start their recovery from a stronger base.
One area in which global confidence does remain somewhat muted is regarding the prospects for further employment. This is one indicator on which the neutrals – who neither expect to increase or reduce headcount – hold sway, accounting for 53 percent and 60 percent of manufacturing and services respondents respectively. Amongst those who do feel likely to act one way or the other, net balances of just +17.1 (services) and +14.6 (manufacturing) are indicative of how businesses appear to be waiting for the recovery to solidify further before getting back on the recruitment trail.
Alan Buckle concluded: “Looking across the results, I feel that there is a three-tiered recovery in play here. In the top tier are the BRIC countries – full of confidence and worried only by inflation or issues from outside of their own borders which they have no control over. In the second tier are the more cautious optimists, including the US and the stronger European countries. The US may be some way out in front in terms of actual net balances but my feeling is that they share a fear with the Europeans over how sustainable the recovery is and what might happen when stimulus packages expire or are withdrawn. In the third tier are countries like Greece whose business confidence is lacking for obvious reasons. Countries in this tier exhibit survey results which lag the others by some way, serving as a salutary lesson to the others that nothing can be taken for granted at this most delicate stage of recovery.”
1Respondents answering ‘no change’ or ‘don’t know’ are removed from the net balance equation, which only takes into account those giving a definite answer one way or the other.
2 Until November 2009, the services and manufacturing surveys ran alternately at quarterly intervals. They were combined in November 2009, at the same time that Japan and the US were added to the survey.
About the survey: The Global Business Outlook Survey for worldwide Manufacturing and Services is produced by Markit on behalf of KPMG and is based on a survey of around 11,000 manufacturers and service providers that are asked to give their thoughts on future business conditions. The reports are produced on a tri-annual basis, with data collected in February, June and October.
The countries covered by the survey are the US, Japan, Germany, the UK, France, Italy, Spain, Ireland, Austria*, the Netherlands*, Greece*, the Czech Republic*, Poland*, Brazil, Russia, India and China. (*Manufacturing only)
Interest in the use of economic surveys for predicting turning points in economic cycles is ever increasing and KPMG’s Global Business Outlook Survey uses an identical methodology across all nations covered. It gives a unique perspective on future business conditions from Global manufacturers and service providers.
The methodology of the KPMG Global Business Outlook Survey is identical in all countries that Markit operates. This methodology seeks to ensure harmonisation of data, and is designed to allow direct comparisons of business expectations across different countries. This provides a significant advantage for economic surveillance around the globe and for monitoring the evolution of the manufacturing and services economies by governments and the wider business community.
Data collection is undertaken via the completion of questionnaires three times a year at four-month intervals. A combination of phone, fax, website and email are used, with respondents allowed to select which mechanism they prefer to use.
The KPMG Global Business Outlook Survey uses net balances to indicate the degree of future optimism or pessimism for each of the survey variables. These net balances vary between -100 and 100, with a value of 0.0 signalling a neutral outlook for the coming twelve months. Values above 0.0 indicate optimism amongst companies regarding the outlook for the coming twelve months while values below 0.0 indicate pessimism. The net balance figure is calculated by deducting the percentage number of survey respondents expecting a deterioration/decrease in a variable over the next twelve months from the percentage number of survey respondents expecting an improvement/increase.
Questionnaires are sent to a representative panel of around 11,000 manufacturing and services companies spread across the global economy in the countries mentioned above. Companies are carefully selected to ensure that the survey panel accurately reflects the true structure of each economy in terms of sectoral contribution to GDP, regional distribution and company size. This panel forms the basis for the Global Business Outlook Survey. The current report is based on responses from around 6,200 firms.
Notes to Editors: KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 144 countries and have 140,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG International performs no professional services for clients nor, concomitantly, generates any revenue.
Markit is a leading, global financial information services company with over 1,400 employees. The company provides independent data, valuations and trade processing across all asset classes in order to enhance transparency, reduce risk and improve operational efficiency. Its client base includes the most significant institutional participants in the financial market place. For more information, see www.markit.com
Markit is a specialist compiler of business surveys and economic indices, including the Purchasing Managers’ Index (PMI) series, which is now available for 26 countries and key regions including the Euro zone and BRIC. The PMIs have become the most closely watched business surveys in the world, favoured by central banks, financial markets and business decision-makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends.