Global recovery loses its shine as optimism begins to wane

THE nascent global economic recovery appears to have lost some of its sparkle with businesses around the world now reversing their expectations of increased activity over the coming year.

The latest edition of Pulse – the Global Business Outlook survey from KPMG International — reveals that, globally, business optimism about the future is at its lowest point for 12 months.

The latest Pulse survey, compiled by research firm Markit Economics on behalf of KPMG International, records a remarkably consistent swing of 6-10 points against most of the 23 key indicators, such as business activity, revenues or new orders.

The percentage of service sector respondents anticipating an increase in business activity fell from 53 percent to 47 percent while their manufacturing counterparts registered a fall of nine percent from 60 to 51. Similarly, when looking at business revenues, the percentage feeling optimistic shrank from 51 percent to 43 in services and from 57 percent to 49 in manufacturing.

As for employment – where optimism has already been more subdued – just 24 percent of service respondents and 27 percent of manufacturing now express confidence in being able to increase employment levels in a year’s time. Commenting on the latest survey findings, Alan Buckle, Global Head of Advisory at KPMG, said: “There is no question that the business mood has worsened. We expected the recovery would be difficult in Western economies. With austerity measures being enacted around the world, these numbers serve as a timely reminder that recovery is a long and winding road and that nothing can be taken for granted. The saving grace here is that – despite recent falls – the percentage of respondents who remain in the optimistic camp is still significant. The net balance of optimists versus pessimists remains healthy; something which reassures me that the possibility of a double dip recession continues to diminish.” “After the last survey, I remarked that it was pleasing to see optimism returning around employment, R&D spend and capital expenditure as improvements here suggested that businesses were confident enough to start investing again. It is disappointing that the confidence to invest was short-lived. Evidently, we still have some way to go before we can fully shake off the concerns which currently prevent investments being made.”

Looking at the latest Pulse numbers, it is clear that the regional success story this time around belongs to thae European services sector as it bucks the trend in shaking off some of its pessimism from previous surveys. With European manufacturers leaking optimism – particularly around new orders – the services sector appears set to take on the role as the main driver of expansion across the continent.

There is little change within the BRIC countries but the US and Japan are a cause for concern. Having reported amongst the highest optimism rates of all in the summer Pulse survey, US respondents have since suffered a dramatic loss of confidence with downward swings of as much as 20 percentage points on certain indicators — with this U-turn being linked to growing signs of a faltering recovery in the US domestic economy. The swing towards pessimism amongst the Japanese may not have been so marked as in the US (tending to be limited to single digit swings) but the impact will likely be felt just as keenly because of their lower starting point. Indeed, on certain indicators such as manufacturing profits and revenues, the percentage of optimists is dropping dangerously close to parity with the pessimists.

Alan Buckle continued: “Amidst all the talk of previously optimistic respondents losing their confidence in the recovery, it is worth remembering that confidence may be weakening – but it is not weak per se. In fact, the BRIC companies continue to anticipate strong rates of expansion while European service companies have made a welcome move in the right direction. The recovery has not ended — but it has lost some of its gloss and lustre.”

Weak economic growth in developed countries threatens Asian recovery – UN

Led by China and India, the Asia-Pacific region made a significant economic recovery this year, following recession in previous years, but weakening economies in developed countries could pose new challenges for the region in 2011, according to a report from the UN’s commission for the region.

The report, entitled “The Year-end Update – Economic and Social Survey of Asia and the Pacific” and issued by the UN Economic and Social Commission for Asia and the Pacific (UNESCAP), recommends increased spending on poverty alleviation to boost domestic demand within the region and sustain the economic dynamism seen in 2010.

Developed countries are increasingly turning to monetary policy to stimulate growth and as a result, many developing economies in Asia and the Pacific are facing a heavy influx of short-term speculative capital flows causing exchange rate appreciation and inflationary pressures, especially in food prices, the report notes.

It projects that regional economic growth is likely to slip to seven per cent next year from 8.3 per cent in 2010.

“The Asia-Pacific region has recovered strongly from the severe 2008-2009 recession,” one of the report’s authors, UNESCAP Chief Economist Nagesh Kumar, said.

“However, it is not yet out of the woods and new challenges have emerged that could adversely affect its performance in 2011.”

These challenges include slowing economic growth in developed countries and their efforts to revive growth with large-scale liquidity injections.

These efforts have triggered huge capital inflows into the region causing “significant exchange rate appreciation in a number of countries” and added to inflationary pressures, particularly in basic food commodities.”

The report goes on to note that while weakening growth in most developed countries has impacted the more export-driven economies of the region, low interest rates and the “enormous liquidity injections known as quantitative easing in many developed countries” have given rise to huge inflows of capital into Asia and the Pacific.