Global business confidence index continues to decline

Tuesday, 1 January 2013 00:00 -     - {{hitsCtrl.values.hits}}

  • West and East register improvement whereas North and South show decline
  • Continuation of weak sentiments in private sector firms
  • Macro level indicators show improvement; micro level indicators drop to lowest level in three years according to NCAER MasterCard Worldwide Index of Business Confidence
  • Optimistic investment climate
  • Political Confidence Index (PCI) increase marginally by 1.2%  points

 The current round of Business Confidence Index (BCI) shows further decline of less than 1% over the previous quarter, according to the latest NCAER (National Council of Applied Economic Research) MasterCard Worldwide Index of Business Confidence, reflecting the persistently weak business sentiments.

Although the rate of decline is much lower or almost negligible when compared to the massive fall of last round, the index reflects concerns in the short run due to the continuation of a low level of confidence.

After showing a marked improvement in April 2012 (134.9), the survey registered a decline in the business sentiments in July 2012 (126.6), which continues in the present survey showing a marginal decline of 0.9% to 125.4 points. Indicators supporting the weak business sentiments were:

  • Widening fiscal deficit
  • Constrained world economic growth due to the weak recovery in the advanced economies
  • Moderation of economic growth along with high and stubborn inflation Deteriorating GDP growth in 2011-12 at 6.5%.
  • Elevated interest rates
  • Policy stagnation

While there are multiple economic and political factors responsible for the continued decline; devaluation of rupee, drastic deterioration in industrial productivity and delayed policy decisions in the last one year have played a pivotal role.

The fresh wave of policy decisions towards the second half of September is likely to improve business sentiments in the coming months.

“The present round of the NCAER MasterCard Worldwide Index of Business Confidence reveals mixed perceptions and some very interesting facts.

While the Business Confidence continues to see a decline, the Political Confidence Index shows slight optimism as does the investment climate making for an extremely critical and decisive next six months.” said Division President, South Asia, MasterCard Worldwide T.V. Seshadri.

Senior Research Counselor, NCAER Dr. Shashanka Bhide, notes that the nearly stagnant industrial production, declining exports and rising concerns on fiscal deficit have weighed down business sentiments.

In the absence of strong recovery in global demand, further improvement in sentiments will require businesses to register significant growth of earnings based on domestic consumer and investment spending”.

In the July 2012 survey, all the four indicators including macro and micro level had shown a significant drop.

However, in October 2012, macro level indicators (overall economic conditions and investment climate) reflect improved business sentiments while micro level indicators (financial position and capacity utilization) continue to fall.


Sectoral Business Confidence

There is a decline in consumer non-durables, capital goods and services sectors over the last quarter whereas consumer durables and intermediates have seen a rise.

Overall the October 2012 BCI is the highest in service sector at 134.9, closely followed by consumer durables sector (133.7), consumer non-durables (125.7), capital goods (121.6), and intermediates (118.6).


Regional Patterns of Business Confidence

West and East have registered improvement in BCI in the current round of the survey whereas north and south have shown decline. Overall the survey has provided an indication of diversity in perceptions of prevailing business environment.

In the present survey, the North remains the main area of concern with all the four pillars of BCI falling. Lower expectations on financial position and poor investment climate have dampened the sentiments in North.


Business Confidence by Size of Firm and Ownership Type

The present survey has captured wide divergence in the perceptions between small and large firms by size. There is lower optimism in smaller and medium-sized firms and greater optimism in larger firms.

The October 2012 survey reflects continuation of weak sentiments in private sector firms mainly on account of micro level indicators. Although the public sector firms reveal improvement in business sentiments over the last quarter, the rate of increase is insignificant.

The firm-level indicators reveal lower expectations of improvement in domestic sales, production, exports, imports and profitability conditions of the firms in the next six months.

The survey reflects higher expectations of increased input cost per unit of output mainly on account of electricity and labour costs in short run.

However, the raw material cost and ex-factory prices are likely to remain stagnant during the next six months.



Special Section on Assessment of Three Financial Market Rates in FY 2012–13

The latest survey has a special section on Current Capital Market Conditions and New Investments. This study aims to assess the change in the conditions relating to credit and capital finance in the recent quarter.

Political Confidence Index (PCI) provides the measure of confidence of the business sector in the political management of economic policies. Contrary to the trend in BCI, the Political Confidence Index (PCI) has increased marginally by 1.2% points in October 2012 over the last quarter.  

Four out of eight indicators of PCI show a decline and the other four show improvement. There is heterogeneity in perceptions of political confidence across sectors and regions: Two of the five major sectors of the economy reflect improvement in PCI and three out of four regions show improvement.

NCAER MasterCard Worldwide Index of Business Confidence is based on a quarterly survey which measures business confidence on four indicators.

They include Overall economic conditions six months from now, Financial position of firms six months from now, Investment climate and Level of current capacity utilisation. All four indicators carry equal weight age.