Grant Thornton: China business optimism picks up in Q1 with higher revenue expectation

According to the Grant Thornton International Business Report (IBR), in the first quarter of 2015, 34% of business leaders in mainland China are optimistic in the economic outlook over the next 12 months, up from 25% in Q4-2014. Meanwhile, businesses show growing confidence on their development and increasing expectation for investment.

Business confidence improves and investment expectation increases

Since the beginning of this year, China maintains sound and stable economic environment, with controllable economic risk. The market confidence remains quite adequate despite the slight slowdown of the economy. IBR data reveals that 31% of mainland businesses cite economic uncertainty as the most important factor constraining businesses' development, dropping from 40%, of last quarter which shows businesses' great confidence in China's economy. Expectations toward profitability also rise accordingly. 30% of businesses expect to increase profits, and 38% anticipate revenues to go the same way, up from 13% and 37% over last quarter respectively. In the meantime, expectation for higher selling price dramatically rebounds to 23% from 1% over last quarter, and worries on shortage of order drops to 29% from 34% of last quarter.

Businesses are planning an increase in investment. Expectation for investment in new buildings (23%) and in plants and machinery (31%) both increase from 10% and 27% of last quarter. Influenced by the “job-hopping season” at the beginning of this year, worries on the lack of skilled workers rise by 11%. To retain talents, businesses also plan to enhance their investment in human cost, with 65% of businesses expect to offer employees a pay rise in next 12 months, up from 60% over last quarter, and 15% plan to offer employees a pay rise above inflation, rising from 8%.

Xu Hua, CEO of Grant Thornton China, says: "the overall economic development of this year maintains stable, in favor of businesses' sound development. With the deepening reform, state-owned businesses will be more dynamic, driving the development of private businesses. Meanwhile, businesses will face new challenges and opportunities. On the basis of strengthening infrastructure and increasing human costs, businesses also need to intensify R&D and improve their competitiveness.”

Business optimism in Eurozone remarkably increases

It has been almost three months since the launch of the European Central Bank's quantitative easing programme, which has boosted business optimism. Grant Thornton International Business Report (IBR) reveals a jump in business optimism in the Eurozone in the first quarter of 2015. 34% of business leaders in the Eurozone are optimistic in the economic outlook, up from just 13% in last quarter, with confidence moving back up towards pre-crisis levels. Many of the economies hardest hit by the financial crisis, such as Ireland, Spain and Italy, are increasingly optimistic about their growth, with optimism of 92%, 59% and 32% respectively. Ireland is the most optimistic business economy in the world.

Expectations for increasing revenues and profits are high in each of these three economies. In Spain, 59% of businesses expect to increase revenues over the next 12 months, and 50% expect profits to go the same way. Ireland is even more buoyant with 70% positive on revenues and 66% on profits. Italian businesses are slightly less bullish but have posted double digit climbs in both indicators over the past three months.

Globally, Latin America and Eastern Europe see sharp downturns. Driven by Brazil (-18%), Latin America has fallen to an all-time low of 5%. Business confidence in Eastern Europe has dropped to just 6% with Russian businesses increasingly pessimistic (-6%).