EU businesses remain surprisingly resilient in their outlook despite risks posed by the migrant crisis, terrorism and a possible referendum on the UK’s European Union membership, according to new research from Grant Thornton.
The latest International Business Report (IBR), which focuses on the final quarter of 2015, finds the optimism of European firms has remained stable heading in 2016. This could be good news for the Manx economy according to Michael Crowe, a director at Grant Thornton in the Isle of Man.
He explained: ‘The EU is a vital trading partner for the Isle of Man and after a sustained period of instability, the fact the outlook is positive for 2016 could mean more business is generated in Europe and more opportunities are created for the Isle of Man.
‘Also important is that confidence in other major economies has slipped; for example the report shows the confidence of US firms has been dented amid concerns over export markets and the strength of the Dollar. Uncertainty in other countries could see more international business focusing on the more confident EU, strengthening the European economy and potentially creating further business opportunities for Isle of Man firms.’
The new IBR says that global business optimism heading into this year stands at net 36%, slightly down from Quarter 3 of 2015 and just above the 35% recorded a year ago. For the first time since the financial crisis, it is the EU which provides the bedrock of stability; net 38% of EU businesses are optimistic about their economy over the next 12 months, exactly the same as in Q3 and Q1.
The report reveals that Ireland (88%), the UK (73%) and the Netherlands (68%) are the EU’s most optimistic economies at the start of 2016. UK firms in particular have reported big increases in their expectations for exports and profitability over the year ahead. Germany, the region’s biggest economy, remains optimistic but is down from 46% to 35% in Q4. This is partly due to profitability expectations falling from 50% six months ago to just 5% today.
The US has seen optimism fall from 74% to 50% in Q4, the biggest fall of any of the 36 countries surveyed. This year also looks much brighter for businesses in Asia Pacific and Latin America as both report big quarterly increases in optimism.
Grant Thornton Global CEO Ed Nusbaum said: ‘The resilience in the EU business community is remarkable when you consider the potential social and political flashpoints. The migrant crisis is yet to be resolved, and the threat of terrorism remains very real, while one of its leading members could vote to leave this year. Yet businesses are shrugging that off and thinking longer-term. Investment in R&D is set to rise and while challenges remain, economies like the UK, Ireland and Spain exemplify the broad based optimism across the continent.
‘The US Federal Reserve showed the confidence to raise interest rates in the final weeks of 2015. However that positivity in the outlook contrasts with what US businesses are reporting. Optimism has suffered a real jolt. Although levels are still healthy, there is a warning light flashing – an issue that’s all the more important given the magnitude of the US economy.
‘The fall in optimism tallies with what US firms are telling us about their export expectations, which have dropped away this last quarter. Exporting firms have had to contend with a strong Dollar. The rate rise is likely to increase this strength, meaning that in 2016 US exporters will need to compete hard to win contracts for their goods and services in overseas markets. The flip side of the strong dollar is that it will increase the appetite of the US consumer for cheaper imports.’
He added: ‘Businesses around the world suffered a dent to confidence in 2015 following uncertainty around the speed and the extent of China’s economic slowdown. That has subsided somewhat. Demand for raw materials and minerals will not reach the heights we saw in recent years but as the need for services grows in China, that creates new trade opportunities. We’re seeing this reflected in the uptick in optimism around the world.
‘The global economy continues to change and evolve, with shifting landscapes in major economies creating new challenges but also new opportunities. Those businesses with an instinct for growth will be best placed to spot these emerging pockets of opportunity, build new trade links, and make the most of the brighter outlook being reported for 2016.’
Photo - Michael Crowe.
