KPMG: Economic recovery takes firm hold worldwide

Further evidence of the recovery taking hold in many major economies around the world comes courtesy of the latest KPMG Global Business Outlook survey, released on April 1. For the third consecutive edition, the survey shows healthy optimism around key measures such as business activity, revenues and profits.

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 balance – 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 United States – 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 12 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 U.S. (at +65.7) comes near to matching the BRIC numbers. The European average is +43.4, with the United Kingdom 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.

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.”