Business leaders across the Asia Pacific region report a split in optimism heading into 2017.
The findings, from Grant Thornton’s most recent quarterly global survey of 2,600 businesses in 37 economies, reveal that emerging and developed Asia Pacific economies are travelling in different directions when it comes to their outlook for the New Year. Globally, the research finds that the majority of business leaders start 2017 in a positive frame of mind.
Research from the Grant Thornton International Business Report (IBR) reveals that business optimism among developed Asia Pacific economies has fallen 8pp in Q4 2016 to net -16%. Japan in particular has fallen 8pp to -45%. However, among emerging Asia Pacific economies, the picture is much brighter. Business optimism has increased by 11pp to 53%. The region’s biggest economy, China, has seen optimism bounce back from 30% to 46% in Q4 2016.
Paul Kane, Partner, Privately Held Business at Grant Thornton New Zealand said, “There is a striking split in the direction of travel between business leaders in emerging and developed Asia Pacific countries. Part of the reason for this could be the likely scrapping of the Trans-Pacific Partnership (TPP), out of which developed economies – like those of Australia and New Zealand – stood to gain the most. However, China is looking to implement its own regional economic partnership, which could fill some of that gap. The high levels of optimism in emerging economies reflect what can happen when closer economic ties are in place, with the ASEAN Economic Community agreed in 2015.
“Global optimism is at its highest since Q3 2015. This reflects a view among the business community that uncertainty over the outcome of major events like the EU referendum and the US presidential election is now behind them; they now have a clearer steer on key issues such as taxes, jobs and trade policy.”
Findings from Grant Thornton’s IBR reveal that across the Asia Pacific region as a whole, the outlook on a number of key indicators is strong heading into 2017. The proportion of firms expecting profitability to increase over the next 12 months has gone up to 34%, the highest in almost two years. Employment expectations remain healthy at 29%, and research and development plans for 2017 (31% plan to increase investment) are higher than this time last year (23%) – but down from the 32% recorded in Q3.
Globally, the proportion of firms expecting revenue to increase in 2017 has gone up by 5pp to net 50% - the highest figure in nearly two years. China (+14pp) and the US (+11pp) reported particularly strong swings in revenue expectations in Q4.
However, the IBR also reveals that the picture outside Asia is not entirely positive. Business optimism in Mexico has fallen to just 8% in Q4 – the lowest quarterly figure it has ever recorded. In Russia, optimism has fallen 13pp to -7%. In addition, the proportion of firms in the EU citing exchange rate fluctuations as a constraint on growth has increased by 8pp to 21%, as elections in France and Germany have the potential to cause market uncertainty.
“There will be challenges in 2017, including the impact of further rate rises from the US Federal Reserve. But these shouldn’t mean that growth plans across Asia Pacific should be abandoned. They may be focused on investing for greater efficiency, hiring new skilled workers, or researching new markets and services. Dynamic firms with the ability to think long-term and pay attention to their operations will be the big winners,” says Kane.