A record number of mid-market businesses expect an increase in profitability despite a drop in optimism, said Grant Thornton recently when releasing its latest International Business Report (IBR).
The record number of mid-market businesses expecting an increase in profitability—up one point to 60%—is most likely due to inflation being brought under control, Grant Thornton noted.
This is highlighted by a five-point drop (down to 50%) in the number of mid-market businesses expecting to increase their selling prices over the next 12 months, the firm added.
“Despite lower levels of optimism—down two points to 65%, it is not all doom and gloom but neither is it getting any easier to choose a clear path, said Peter Bodin, CEO of Grant Thornton International. “With the global economy in a lower growth trajectory, the decisions made by business leaders will have a far bigger impact on whether companies are successful or not.”
IBR highlights
- Every business constraint tracked in the IBR has also eased, indicating less pressure on margins. For example, those citing labour costs as a constraint is down two points to 51%, those citing energy costs as a constraint is down two points to 52%, and those citing a shortage of finance is down four points to 40%.
- Elsewhere, concerns over a shortage of orders has dropped five points to 43%; concerns over red tape and regulation is down four points to 47%; and concerns over availability of skilled labour is down three points to 50%.
- While these numbers have dropped, most have dropped marginally and still remain well above average since the IBR research began.
- However, there is little doubt that the relentless pressure on margins may finally be easing, as seen by a four point drop in the number of businesses expecting to provide real salary increases over the next year (down to just 19%).
- This may also explain the marginal increase (up one point to 50%) in the number of businesses expecting to increase the number of people they employ.
- Despite a marginal drop of one point, economic uncertainty remains the most frequently cited constraint, by 57% of mid-market business leaders.
- That uncertainty has spilled over into a less optimistic outlook for international trade. Business leaders expecting to increase exports has dropped four points to 43%.
- This is driven by a three point drop (down to 40%) in the number of leaders expecting to increase the number of countries they sell to and a two point drop (down to 42%) in those expecting to increase revenue from non-domestic markets.
- While profit expectations are up, the one point rise is matched by a one point drop in those expecting to see an increase in revenues over the next 12 months – down to 59% of respondents.
- This expectation may be flowing through to marginal falls in business investment expectations.
- However, investment in technology remains top of the list with no change in proportion of leaders (61%) expecting to increase investment in this area.
- Elsewhere there is a one point drop in investment in staff skills (down to 56%), a two point drop in investment in research and development (down to 52%), no change in investment in plant and machinery at 46%, and a two point drop (down to 36%) in investment in new buildings.
