Uncertainties continue to affect global businesses

10 April 2019 Consulting.us 3 min. read

Europe has Brexit. The US and China have their trade war. And a tightening labour market is set to increase business costs, while credit conditions tighten. Business optimism overall has fallen in Europe and the Asia-Pacific (APAC) region, while Europe has seen export expectations decrease. Disruptive technology and business models also continue to be seen as risks to businesses worldwide.

It is shaping up as a year of large-scale uncertainties, the impact of which are likely to have impact on global growth, which could affect over-leveraged companies, resulting in additional uncertainties. To better understand the current situation, as well as offer predictions for 2019 and beyond, Grant Thornton recently released its “Thriving in 2019’s Global Economy” report. The report is part of its wider “International Business Report.”

Global business confidence and export expectations

While uncertainty is set to continue as the trend going into 2019, the survey shows a relative mixed bag in terms of business confidence in the final quarter of 2018. US respondents are less optimistic relative to Q2, but their optimism is still above the global optimism score (39%) at a net 58. Optimism in Latin America, meanwhile, increased in the latest survey, coming in at a net 48% optimistic. Europe saw a fall in overall optimism – although still hitting “positive” territory – at 28%. The developing APAC region is the least positive however, with -12% overall. The APAC region as a whole is relatively positive, at a net 34%, but lower than the global average and its previous response. The emerging APAC region continues to have net positivity above the global average, at 58% of respondents.

While optimism has fallen, the study suggests that overall a net 21% of global respondents expect exports to increase over the coming 12 months. African respondents are very positive, with a net 44% – an increase on the previous survey. European respondents are a net positive 19%, but note a decline on their previous optimism. The APAC region expects a net positive of 24%. 

Growth softens but remains robust

Economic uncertainty was up 22 points to 50% net from Q2 2018, although the overall growth picture for the global economy remains relatively robust for 2019, even with some softening on the previous year, at 3.7% and 3.5% respectively. Advanced economies are likely to see a strong decline in growth when compared with emerging markets, with an expected decrease from an average 2.3% last year to 2% this year. Developing economies could see a slight average growth decrease, from 4.6% to 4.4%. Growth in developing economies, however, could increase to 4.9% by 2020.

There is relative positive momentum overall, with unemployment rates falling to their lowest levels globally since the 1980s, which is likely to see wages and consumer spending rise. While the labor market is tightening, many respondents remain wary about access to skilled labour, with various new business trends requiring expertise that can come at a premium

Top-level outlook for 2019

While global uncertainties create macroeconomic headaches, businesses also face disruption and insurgent business models. The effect of start-ups that are able to quickly disrupt legacy models as well as capture large tracts of customers from across segments has seen considerable investment in acquiring companies and talent, as well as investment in R&D and innovation. The report suggests that last year’s investment in R&D was up a net nine percentage points to net 31% in Q4 2018, from 22% in Q2. The increase was led by the US, in part due to tax code changes, with a net increase to 34% increasing investment. India saw net investment increase from 21% to 51% of respondents. Technology, too, continues to be a player, with a net 42% of respondents actively investing in the space.