Positive outlook for economy, particularly manufacturing

After a dip in confidence four months ago which raised doubts over the sustainability of the global economic recovery, optimism again appears to be back in fashion across virtually all key markets.

The latest edition of Pulse - the Global Business Outlook survey from KPMG International - reveals that global business optimism around several key indicators now stands at the highest levels ever recorded by the survey.

The Spring 2011 Pulse survey, compiled by research firm Markit Economics on behalf of KPMG International, also shows that confidence across Europe and the US finally appears to be approaching parity with their BRIC counterparts. The Pulse survey is based on a survey of approximately 11,000 manufacturers and service providers that are asked to give their thoughts on future business conditions.

In the Winter 2010 Pulse survey, falls of between six and ten points were recorded across many key indicators such as activity, revenues, and new orders. Many of those losses have now been recouped. For example, in the services sector, 55 percent of respondents predict an improvement in business activity in the next year. Just eight percent predict a decline; creating a net balance of +47, up from +36 last time around. Similarly strong - and improving - net balances were also recorded against new orders (+42), revenues (+39), profits (+35), and even employment (+19), which has typically lagged all other indicators throughout the recession.

The story is even more promising in the manufacturing sector with four of the top five indicators all recording record highs since the Pulse survey became global in October 2009. Net balances for business activity and new orders both passed the +50 mark, with revenues not far behind at +49. Employment optimism also hit its record mark at +25. At +36, optimism around increased profits may not be at a survey-high point but this figure still represents a nine point improvement from Winter 2010.

Commenting on the latest survey findings, Alan Buckle, global head of advisory at KPMG, said: "I think the most encouraging aspect of these numbers is that the recovery is worldwide. However, while the survey takes some account of events in North Africa and the Middle East, we have yet to see the impact of the tragic events in Japan. The global figures look strong but the U.S. numbers have also rebounded to the levels of last summer, while the European numbers have surged even further ahead than that. China and the other high growth economies are no longer alone to blaze the recovery trail. As long as that was the case, the economic recovery always felt somewhat fragile as it lacked wholesale support from the world's two biggest economic blocs. With Europe and the U.S. now appearing to be properly on board, the recovery feels more robust. However we need to see what the impact is of global events - particularly in Japan."

Unsurprisingly, some problems still remain with inflation appearing to be a key hindrance. In manufacturing for example, belief that input prices will rise in the coming year stands at +47. This is up 17 points from Winter 2010 as increasing commodity prices make their presence felt. Belief that such rises can be passed on via higher output costs is also up 13 points but this still only results in a net balance of +31.

Within the service sector, the trend is the same although the numbers are slightly more muted. The net balance of those expecting input prices to increase rose from +21 to +24 whereas the net balance of respondents expecting to be able to charge higher prices stands at just +15.

Buckle continued: "Prior to recent events in Japan the main dampeners of optimism were the problems of rising commodity prices, the fear of inflation and the need to still bring deficits under control. However, I get more of a feel now that companies are prepared to simply get on and deal with such things.  Let's hope that for business as well as human reasons, events in Japan are quickly under control and this confident survey isn't invalidated."
 


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