Global business optimism is rising as inflation starts to show signs of easing.
According to Grant Thornton’s International Business Report (IBR), optimism among mid-market business leaders climbed to 67% during the first half of 2023 — up 8% compared to H2-22.
The climb in global business optimism has been driven by record numbers of mid-market business leaders expecting increases in profitability (up four points to 59%), selling prices (up four points to 55%) and revenue from exports (up two points to 47%), the firm noted.
One explanation for the expected increase in profitability is the record number of leaders expecting an increase in exports over the next 12 months — up two points to 47%, Grant Thornton said.
Those expecting to increase revenue from non-domestic markets was also up four points to 44% as well as those expecting to increase the number of countries they sell to — up two points to 43%, the firm added.
This matches previous highs in terms of the number of respondents expecting to see increases in these areas, the firm pointed out.
While the IMF recently commented that the rise in central bank interest rates to fight inflation around the world 'continues to weigh on economic activity', mid-market business leaders appear to believe these actions are working and the end of rising interest rates may be in sight, explaining their increased optimism for the next 12 months, Grant Thornton said.
Investment intentions growing
This global business optimism is driving record levels of investment intentions with a record 61% of business leaders indicating they plan to invest in technology over the next 12 months — this could, in part, be a response to the explosion of artificial intelligence during the first half of 2023, the firm noted.
However, the future does not appear to be completely technology dependent, with a record 57% of business leaders (up four points) indicating they expect to increase investment in staff skills, the firm said.
Investment intentions are also up for research and development (up three points to 54%), plant and machinery (up two points to 46%) and new buildings (up two points to 36%), according to IBR.
Though the IMF pointed out in its most recent World Economic Outlook, the global economy has shown near-term resilience, there remain a number of persistent challenges, Grant Thornton pointed out.
Economic uncertainty remains the leading constraint identified by mid-market business leaders in Grant Thornton’s IBR, according to 58% of respondents (down two points).
While the number of executives highlighting constraints has fallen across the board, these still remain significantly above pre-pandemic averages, Grant Thornton said.
For example, those identifying energy costs as a constraint fell six points to 54% (compared to a pre-pandemic average of 29%), the firm noted.
Concerns over availability of skilled workers fell four points to 53% and labour costs fell two points to 53% during H1 2023, according to the report.
The impact of regulation and red tape was static at 51%, while concerns over a shortage of finance fell three points to 44% and transport infrastructure was down five points to 44%, the report stated.
CEOs around the world are under pressure like never before, said Peter Bodin, CEO of Grant Thornton International Ltd.
Business leaders had to re-engineer business models and supply chains during the pandemic, said Bodin, adding that they are now doing it again in the face of rising interest rates, the arrival of ai and the ever-increasing demands of ESG.
“This is why it makes complete sense that we can see concerns over business constraints at historically high levels — although softening — along with rising global business optimism,” he noted.
