GT IBR 2011 - The global economy in 2012

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GT IBR 2011 - The global economy in 2012

  1. 1. GRANT THORNTON INTERNATIONAL BUSINESS REPORTThe global economy in 2012:a rocky road to recovery
  2. 2. Contents01 Foreword02 The past 12 months04 The year ahead05 Business confidence08 Business operations13 Investment15 Inflation18 Employment22 Access to finance24 Topical issues30 Methodology32 IBR participants
  3. 3. Foreword ED NUSBAUM CHIEF EXECUTIVE OFFICER GRANT THORNTON INTERNATIONALWe have witnessed a large amount of The International Business Report As the IBR enters its 20th year, thepolitical and economic turmoil over (IBR) became a quarterly survey in global economic outlook is uncertainthe past 12 months, from uprisings in 2011, allowing us greater flexibility and social unrest is growing. Inthe Middle East and North Africa to in analysing and understanding the mature markets, debt crises and thethe tsunami in Japan and the sovereign impact of key events on business impact of ageing populations remaindebt crisis in the eurozone. Resulting growth. This new approach allows unresolved whilst emerging marketsvolatility in commodity prices, us to deliver not only the economic are grappling with persistent inflationdisruptions to supply chains and perspective of business leaders on and a shortage of skilled workers. Asgeneral uncertainty has impacted events such as the Arab Spring, technology advances, competitionbusinesses across the globe, slowing renewable energy and global lease increases and the balance of economicthe recovery in both mature and accounting changes, but also deep power flows to high-growth marketsemerging markets. insight into strategic issues such as the such as Brazil, China and India, the proportion of women in senior global economy is undoubtedly management and corporate social entering a new phase. responsibility activities. Drawing on Despite this apparent adversity, more than 13,000 interviews in 40 many of our clients are thriving. By economies, this report explores the remaining agile and adaptable to trends that will shape the speed and change, these dynamic organisations trajectory of the recovery over the are able to capitalise on opportunities next 12 months, including demand, quickly. In a turbulent world, they employment, investment, inflation look set to reap the richest rewards. and access to finance. Grant Thornton IBR 1
  4. 4. The past 12 months 11 Feb 2011 Egyptian 19 Mar 2011 UN Security 14 Apr 2011 BRICS 27 Apr 2011 Sony disclose that hackers President, Council group of breached their online video game Hosni Mubarak, backs economies network, stealing details of more resigns intervention meet for than 77 million customers in Libya the first 29 Apr 2011 time in Estimated 2 billion people China watch UK Royal wedding 18 Dec 2010 Death of Mohamed Bouazizi ignites Arab Spring 16 May 2011 Portugal become third member of 8 Apr 2011 Brent crude eurozone to 14 Jan 2011 Tunisian government oil climbs be bailed out, 11 Mar 2011 Earthquake falls above following 1 May 2011 and tsunami Osama World events hit Japan US$125 Bin Greece and a barrel Laden Ireland killed 2010 IBR releases Business confidence picks 8 Mar 2011 up in mature 34% markets, boosting the global average to 34% International M&A activity set Women’s Day – Global business to rise over the proportion of World 14 Mar 2011 16 Feb 2011 4 Jan 2011 5 Jun 2011 optimism is year as senior Environment robust (23%), businesses look management roles Day – public led by buoyant for strategic held by women opinion driving Latin America acquisitions falls back to 20% CSR activity 23% Mergers and acquisitions: global prospects for growth International Business Report 20112 Grant Thornton IBR
  5. 5. 28 Jul 2011 Second 6 Aug 2011 US sovereign debt 4 Oct 2011 Italy’s debt rating 31 Oct 2011 Global population bailout downgraded to AA+ slashed by three reaches 7 billion agreed for following political battle grades as euro 28 Jun 2011 Christine Lagarde Greece over debt ceiling gloom deepens appointed head of the IMF Steve Jobs, ECB cuts eurozone 20 Oct 2011 Colonel 5 Oct 2011 3 Nov 2011 co-founder Gaddafi interest rate with of Apple, captured and forecasts downbeat dies killed in Libya for regional growth 9 Jul 2011 South Sudan in 2012 secedes from Sudan Yingluck Russia to join 5 Aug 2011 23 Aug 2011 28 Sep 2011 Gold reaches Barnier 9 Nov 2011 Shinawatra US$1,900 proposals WTO following appointed as per ounce aim to boost agreement with first female after global competition in Georgia Prime Minister stock markets accountancy of Thailand tumble 2011 Arab Spring Business Majority of affects one-in-five confidence businesses are 16 Nov 201121 Jun 2011 24 Oct 2011 businesses tumbles to unaware of Emerging markets globally, but just lowest level IASB/FASB lease steal social media one-in-ten will avoid since 2009 accounting lead on old world region long-term (3%) proposals rivals Arab Spring reignites renewable Ed Nusbaum energy debate calls for a 25 Nov 2011 6 Oct 2011 as businesses $1tr bailout Dec 2011 across the globe fund and IBR Food & IBR 2011 call for more cut to ECB Beverage Global Global business 9 Sep 2011 investment in interest rate report released Overview optimism falters renewables to (31%) as natural 3% 6 Jul 2011 limit impact of Managing through uncertainty: disasters, political GRANT THORNTON INTERNATIONAL BUSINESS REPORT Food and beverage industry oil price shocks in transition The world economy in 2012: a rocky road to recovery and economic Wary consumers and rising prices challenge executives around the globe unrest bite 31% Grant Thornton IBR 3
  6. 6. The year aheadWhilst a stuttering global recovery has seen growth FIGURE 1: EMERGING ECONOMIES CATCHING UP FORECAST GROWTH IN GDPestimates cut across the board, the transfer ofeconomic power from mature to emerging Developing Asia 8.2 8.0economies is speeding up. On a purchasing power Emerging economies 6.4 6.1parity basis China could overtake the United Statesin 2016 as the world’s largest economy, although it Sub-Saharan Africa 5.2 5.8will remain markedly less well off on a per capitabasis. ASEAN-5 5.3 5.6 The recovery in mature economies has stalled as CIS 4.6 4.4governments and consumers deleverage followingthe financial crisis. With businesses cautiously Latin America and Carribean 4.5 4.0sitting on cash and global trade slowing, growthprospects in mature markets look weak. The latest World 4.0 4.0IMF forecasts show advanced economies growingby just 1.6% in 2011, and 1.9% in 2012, anaemic MENA 4.0 3.6growth in comparison with pre-crisis levels. Advanced economies 1.6 1.9 With the global economy forecast to expand byaround 4% in both 2011 and 2012, growth is being EU 1.7 1.4driven by emerging markets. As a group these areexpected to grow by 6.4% in 2011 and 6.1% in G7 1.3 1.72012. Oil producing economies in the Middle East 2011 2012and North Africa are running large trade surplusesand opening up to investment following the Arab SOURCE: IMF (2011)Spring, suggesting that the shift in economic powercould accelerate further. That said, further and faster integration into theglobal economy exposes emerging economies to theslowdown in mature markets whilst inflationremains an issue in the key markets of Brazil, China “Economies such as China are catching up fast.and India. Consequently, whilst confidence has With growth rates in mature markets notimproved year-on-year, businesses remain cautious expected to reach pre-recession levels anytimeabout their prospects for the year ahead. soon, a rebalancing of global economic power is well underway.” XU HUA GRANT THORNTON CHINA4 Grant Thornton IBR
  7. 7. Business confidenceGlobal business confidence for the year ahead hasfluctuated as the strength of the recovery, which “The situation in Greece is very difficult.initially seemed to be gathering force, hit a wall. At Government austerity measures have dried upthe back end of 2010, confidence in emergingmarkets, especially Latin America, boosted the lucrative public sector contracts and increasedglobal average to 23%, and when mature markets taxation. Businesses are trying to keep theirbegan to catch up in Q1 this climbed to a very heads down and focus on the bottom line.”healthy 34%, the highest since 2008. However, the impact of political turmoil, VASSILIS KAZASeconomic uncertainty and natural disasters on GRANT THORNTON GREECEbusinesses became evident in Q2 as globaloptimism dropped to 31%. By Q3 it became clearthat the stuttering recovery had stalled, with thesovereign debt crisis ravaging mature markets;global optimism fell to just 3%, its lowest level FIGURE 2: QUARTERLY BUSINESS OPTIMISM (2011)since the depths of the global recession in 2009. NET PERCENTAGE OF BUSINESSES INDICATING OPTIMISM FOR THEIR ECONOMY OVER NEXT 12 MONTHS Whilst businesses in emerging markets have 70remained more confident about the prospects for 60their economies over the next 12 months, they have 50 40not been immune to the slowdown in the global 30economy. Optimism in the BRIC economies fell 20from 57% in Q1 to 25% in Q3. However, 10businesses in mature markets have suffered even 0 -10more: optimism amongst businesses in the G7 fell -20from 27% in Q1 to -8% in Q3 (indicating that Q4 2010 Q1 2011 Q2 2011 Q3 2011more businesses were pessimistic about their BRIC 54 57 44 25economies over the next 12 months than were G7 11 27 27 -8 Global 23 34 31 3optimistic). SOURCE: GRANT THORNTON IBR 2011 Grant Thornton IBR 5
  8. 8. Over the longer term the polarisation betweenemerging and mature markets is more pronounced, “The past 12 months have been far fromwith confidence in the BRIC economies well above smooth. Three massive earthquakes have causedthat of the G7. Year-on-year, global businessoptimism declined slightly from 24% in 2010 to huge disruption to businesses and their22% in 20111. In the BRIC economies, levels of employees. The good news is that the Rugbyoptimism for the year ahead averaged 47% across World Cup has been a massive success.”2011 compared to just 14% in the G7. That said, whilst 8% more businesses in the G7 PAM NEWLOVEcountries were optimistic in 2011 compared to GRANT THORNTON NEW ZEALAND2010, 13% fewer businesses were optimistic in theBRIC economies. This demonstrates thecautiousness of businesses in the emerging marketsas they become increasingly exposed to strongglobal economic headwinds. FIGURE 3: ANNUAL BUSINESS OPTIMISM (2003-11) Despite an uncertain economic climate the NET PERCENTAGE OF BUSINESSES INDICATING OPTIMISM FOR THEIR ECONOMY OVER NEXT 12 MONTHSmajority of businesses remain optimistic for the 80outlook of their country’s economy over the next 7012 months, led by emerging economies – India 60 50(+86%), Chile (+85%) and the Philippines 40(+85%). Business confidence also remains high in 30the United Arab Emirates (+76%) suggesting that 20confidence has not been damaged unduly by the 10 0‘Arab Spring.’ -10 The troubled PIGS economies (Portugal2, -20Ireland, Greece and Spain) remain overwhelmingly -30pessimistic. Greece (-46%) and Spain (-45%) in -40 -50particular face extremely difficult economic 2003 2004 2005 2006 2007 2008 2009 2010 2011conditions with soaring unemployment and a BRIC – – – – 81 80 39 60 47steady decline in bond ratings. Italy’s business G7 -18 38 36 20 22 15 -41 6 14confidence also plummeted between Q2 and Q3 Global 3 40 41 39 45 40 -16 24 222011, falling by 66 percentage points reflecting SOURCE: GRANT THORNTON IBR 2011concerns over a high debt burden and a slow rate ofgrowth which have seen bond yields climb over7%. Japan’s confidence remains low (-67%) whereexisting economic challenges have been compoundedby the fallout from the earthquake and tsunami inMarch this year. “Considering the difficulties in the eurozone, business confidence has held up remarkably well in Germany. Whilst the regional picture is fairly gloomy, exports to emerging economies have remained resilient.” KLAUS-GÜNTER KLEIN WARTH & KLEIN GRANT THORNTON, GERMANY1 2011 refers to the Q3 rolling average incorporating data from Q4-2010, Q1/Q2/Q3-20112 not included in IBR6 Grant Thornton IBR
  9. 9. FIGURE 4: ANNUAL BUSINESS OPTIMISM BY COUNTRY (2011)NET PERCENTAGE OF BUSINESSES INDICATING OPTIMISM FOR THEIR ECONOMY OVER NEXT 12 MONTHS India Philippines Chile United Arab Emirates Germany Georgia Mexico Sweden Canada Argentina South Africa Brazil Singapore Vietnam Hong Kong Switzerland Turkey Botswana Malaysia Thailand China (mainland) New Zealand Denmark Armenia Belgium Australia Taiwan Finland Poland United States Russia Netherlands Italy France United Kingdom Ireland Spain Greece Japan Very pessimistic Slightly pessimistic Slightly optimistic Very optimisticSOURCE: GRANT THORNTON IBR 2011 Grant Thornton IBR 7
  10. 10. Business operationsExpectations of business performance – how muchbusinesses are selling and how this is affecting their “Despite the knock-on effects of the Arab Springbottom line – have fluctuated along with widereconomic expectations; an indication of how the on one side and the sovereign debt crisis in theuncertainty in the global economy is damaging eurozone on the other, the economy is performingbusiness growth prospects. With governments and robustly. Profitability is up as businessesconsumers in many mature markets deleveraging, increasingly find economies of scale in theirthe hope was that investment and exports wouldtake up the slack. However, the results show a operations.”dramatic fall in business growth prospects in the AYKUT HALITlast quarter: global expectations for revenue (-10 GRANT THORNTON TURKEYpercentage points) profits (-9) and exports (-5) alldropped sharply in Q3. That said, average expectations for 2011compared with 2010 improved, although lesssharply than in the previous 12 month period when FIGURE 5: PERFORMANCE INDICATORS – REVENUE, PROFITS AND EXPORTSthe recovery seemed more certain. Across 2011, NET PERCENTAGE OF BUSINESSES EXPECTING AN INCREASE OVER THE NEXT 12 MONTHSbusiness expectations for profitability and export 80expectations returned to 2008 levels. Turnover 70(53%) however, remains below the 2008 result 60(63%). 50 40 30 20 10 0 -10 2003 2004 2005 2006 2007 2008 2009 2010 2011 BRIC 44 58 63 61 70 63 11 40 53 G7 15 18 18 20 20 18 4 16 21 Global 31 42 45 46 52 41 -5 29 40 SOURCE: GRANT THORNTON IBR 20118 Grant Thornton IBR
  11. 11. Expectations for profitability have shown the FIGURE 6: IN SEARCH OF PROFITABILITY – TOP AND BOTTOM 5 COUNTRIES NET PERCENTAGE OF BUSINESSES FORECASTING PROFIT GROWTH OVER NEXT 12 MONTHS, BY COUNTRYstrongest increase year-on-year. This continues thetrend from IBR 2010 and is extremely positivegiven the dramatic fall in 2009 when profitabilityprospects turned negative for the first time in IBRhistory. The greatest increase in expectations overthe past 12 months was observed in Turkey whereconsumer spending fuelled a 39 percentage point Vietnam: 90%increase. In Mexico expectations rose by 36percentage points. Once again businesses in India: 79%emerging markets dominate the top spots forprofitability expectations, with Vietnam (90%)followed by India (79%) and then Mexico,Philippines (both 68%) and Brazil (66%). Expectations for increasing exports rose to21% in 2011, similar to results observed in 2006.The EU, which for all its problems remains the Mexico: 68% Philippines: 68%largest single market in the world, leads the way(29%). Businesses in Turkey remain the mostoptimistic for exports in 2011 (54%), followed bythe United Arab Emirates (41%), perhaps reflectingexpectations that the Middle East and North Africa Brazil: 66% Global: 40%will open up to outside investment following theArab Spring. Businesses in Denmark and Germanyare also optimistic for export prospects over thenext 12 months – making the top five alongside Spain:Singapore. Switzerland: 16% 24% Poland: Japan: -8% Greece: 15% -11% SOURCE: GRANT THORNTON IBR 2011 “Household finances remain under pressure from a marked decline in real incomes and a 17 year high for unemployment rates; government spending is hit by fiscal constraints and exports are faltering as global growth eases. However, in the longer term, we expect more forward momentum as the valuation gap shrinks and as the Business Growth Fund encourages bank funding to flow more quickly. In the meantime, businesses need to continue challenging the way things are done to find new, creative ways to ride out or even rise above the numerous economic challenges.” SCOTT BARNES GRANT THORNTON UNITED KINGDOM Grant Thornton IBR 9
  12. 12. Revenue expectations have increased in 33 FIGURE 7: FALLING DEMAND PERCENTAGE OF BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED DEMAND AS A CONSTRAINT ONcountries from 2010. The most notable decline from GROWTH, BY REGION2010 was in Greece (31 percentage point drop). Themost optimistic business communities in terms ofrevenue prospects are within the emergingeconomies: Vietnam (92%), India (87%) and Chile(85%). Vietnamese businesses remain the mostupbeat (92%) followed by India (87%) and Chile(85%). Expectations for revenue are far less PIGS: 41%buoyant in Greece (4%), Japan (17%), Ireland(28%) and Spain (30%). APAC (excl. Japan): 34%DemandImproved prospects for profits and revenues comeon the back of a recovery in global trade with fewerbusinesses citing a shortage of orders/reduced BRIC: 32%demand as a constraint in 2011 (32%) compared G7: 32%with 2010 (39%). Perhaps unsurprisingly, Global: 32%businesses in the troubled PIGS economies aresuffering most from a drop in demand asgovernments and consumers tighten their belts:41% cite a shortage of orders/reduced demand as aconstraint, followed by 34% in APAC (excl. Japan). ASEAN: 31% EU: 27% However, a look at the quarterly results makesfor more sombre reading. Globally, the proportionof businesses citing a fall in demand increased byfive percentage points in Q3, and some of theregional figures were more severe: both the North America: Latin America:eurozone and Association of South East Nations 18% 25%(ASEAN) registered 10 percentage point increases,whilst all other regions (apart from Latin America)cited a squeeze on order books. Following the disruption to supply chains it is SOURCE: GRANT THORNTON IBR 2011perhaps little surprise to see businesses in Japan asthe most concerned about a shortage oforders/reduced demand (67%), followed by two ofits neighbours, Thailand (51%) – which has alsosuffered severe flooding since July – and Vietnam(48%). European businesses, especially those inGreece (48%), France (42%) and Spain (40%), arealso concerned by a lack of orders. BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED DEMAND AS A CONSTRAINT IN 2011 %10 Grant Thornton IBR 32
  13. 13. FIGURE 8: SQUEEZE ON ORDER BOOKS FIGURE 9: LEVELS OF BUREAUCRACY HOLDING BACK GROWTHPERCENTAGE OF BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED PERCENTAGE OF BUSINESSES CITING REGULATIONS/RED TAPE AS ADEMAND AS A CONSTRAINT ON GROWTH, BY COUNTRY CONSTRAINT ON GROWTH, BY COUNTRY Greece 57 Japan 67 Bra % % zil 5 Po 0% lan d5 Tha 0% Ind ilan ia 47 d5 Vie % 1% tna m Gr Viet 48 ee nam ce % 48 44% % Russia 44 Taiw % an 4 2% 3% France 42 Thailand 4 % 41% ana Botsw 7% Spain 40% a3 tin 7% 39% ge n nd) a3 ainla Ar ali a (m Chin str 8% Au d3 7% lan Ire d3 lan PoSOURCE: GRANT THORNTON IBR 2011 SOURCE: GRANT THORNTON IBR 2011Bureaucracy India has moved up the bureaucracy ranking toGlobally the impact of regulations and red tape has fourth this year following a 22 percentage pointmarginally declined as a constraint for business increase in the number of businesses citing it as aexpansion, from 32% in 2010 to 30% in 2011. constraint on expansion. Regulations and red tapeHowever, businesses in BRIC economies are more have long been an issue for businesses in India and,concerned about bureaucracy over the next 12 given that performance expectations and optimismmonths with 35% citing it as a constraint this year are high, the research suggests that simplifyingas opposed to 29% in 2010. processes could unlock a great deal more potential Troubled Greece continues to top the list of in an already booming economy.economies where businesses feel the most underpressure from bureaucracy (57%), an interesting BUSINESSES CITING THE IMPACT OF REGULATIONS AND RED TAPE ASresult in an economy struggling to make the A CONSTRAINT ON BUSINESS EXPANSION IN 2011structural reforms necessary to recover %competitiveness. It is followed by two emerging 30economies from different sides of the globe: Braziland Poland (both 50%). Just two mature economies– Greece and Australia (37%) – are included in thetop 10. Grant Thornton IBR 11
  14. 14. Prospects for 2012 Businesses in the lower right quadrant are Businesses in the Latin American economies of confident about growth prospects, but less so Argentina, Brazil, Chile and Mexico look well- about orders. They include those in some of the placed for growth moving in to 2012 with both large, rapidly expanding emerging economies strong order books, and higher revenue such as China, Russia and Turkey which could expectations (the upper right quadrant). Other pose an issue for longer term global economic emerging economies such as India, South Africa growth. and the Philippines also look set for a strong 12 Meanwhile, those in the upper left months, as well as those European countries quadrant seem to be suffering from increased which, at least initially, recovered quicker from competition, with stronger order books failing the downturn: Germany and Sweden. to result in higher revenue prospects. This By contrast, businesses in the PIGS quadrant includes four members of the G7 – economies expect another tough year in 2012. Canada, Italy, the United Kingdom and the They are joined in the lower left quadrant by United States – indicating the challenges three other European countries – France, businesses in mature markets are facing in Switzerland and Poland – and Japan in a group adapting to a changing global economy. of countries where prospects for business growth look weakest. FIGURE 10: EXPECTATIONS FOR ORDERS AGAINST REVENUES Lower revenues Higher revenues Stronger order books Stronger order books Germany Brazil Netherlands Belgium Malaysia Canada/Switzerland Sweden Philippines Australia Finland South Chile UAE Africa Singapore Argentina Italy US Denmark Hong India Armenia New Zealand Kong Mexico UK Russia Turkey Ireland Georgia Poland Botswana China (mainland) Spain Taiwan France Greece Vietnam Thailand Japan Lower revenues Higher revenues Weaker order books Weaker order books SOURCE: GRANT THORNTON IBR 201112 Grant Thornton IBR
  15. 15. InvestmentWith consumers and governments in many maturemarkets sidelined by heavy debt, the strength of “A lack of investment in R&D is a concern forbusiness investment is increasingly vital to the the long-term future of businesses. Despite thehealth of the global economy. Prospects forinvestment in new buildings and plant & machinery uncertain economic outlook, setting aside timegrew robustly following the downturn, but have and capital to expand products and servicesslowed since. Expectations for R&D investment should remain high on the agenda.”have declined since 2010. The fragility of therecovery, rising commodity prices and a pervading MIKE MCGUIREuncertainty have undoubtedly made businesses GRANT THORNTON UNITED STATESmore cautious about investment. Whilst many businesses in mature markets arebeing forced to focus on cost savings and thebottom line, investment sentiment remains buoyant FIGURE 11: EMERGING MARKETS LAGGING BEHIND ON INFRASTRUCTUREin emerging economies. In Latin America, 53% of PERCENTAGE OF BUSINESSES CITING INFRASTRUCTURE AS A CONSTRAINT ON GROWTHbusinesses expect to increase investment in plant &machinery over the next 12 months, 35% in R&Dand 26% in new buildings. Their ambitions arematched by businesses APAC (excl. Japan) where47% expect to increase investment in R&D, 42%in plant and machinery and 25% in new buildings. At the other end of the spectrum, expectations Transport ICTfor investment in new buildings are lowest in the BRIC 26 21 Global 13 14EU (11%), exacerbated by low expectations in the G7 8 11PIGS economies (6%). In terms of plant andmachinery, investment prospects are weak across SOURCE: GRANT THORNTON IBR 2011FIGURE 12: BUSINESS INVESTMENT PLANSNET PERCENTAGE OF BUSINESSES EXPECTING TO INCREASE INVESTMENT OVER NEXT 12 MONTHS APAC (excl. Japan) Latin America BRIC ASEAN Global EU North America G7 PIGS New building 25 26 23 26 17 11 17 13 6 Plant & machinery 42 53 45 46 34 31 30 30 25 R&D 47 35 42 33 23 20 13 15 21SOURCE: GRANT THORNTON IBR 2011 Grant Thornton IBR 13
  16. 16. FIGURE 13: CONNECTIVITY HOLDING EMERGING MARKETS BACKPERCENTAGE OF BUSINESSES CITING INFRASTRUCTURE AS A CONSTRAINT ON GROWTHTRANSPORT INFORMATION AND COMMUNICATIONS TECHNOLOGY Thailand 3 Turkey 49 Indi a3 8% 6% % Tu rke Tha y3 ilan 2% d4 0% Br az Ind il 2 ia 5% 36 Chin % a (m ainl and ) 25% Mexico 25 Me % xic o2 8% % Russia 21 20% ana Chin otsw % a2 % B 18 2% 18 ce ee es Gr Japan 21 pin % ilip Ph 20% Botswana 17% ines Philipp % 17 ia % org 17 Ge an iw TaSOURCE: GRANT THORNTON IBR 2011the mature economies, with the EU (31%), North Businesses throughout the BRIC economiesAmerica, G7 (both 30%) and PIGS all below the show dissatisfaction with local infrastructure.global average. Expectations for investment in Businesses in India are particularly concerned;R&D are a full 27 percentage points lower in the more than a third cite both transport and ICTG7 (15%) – dragged down by the North America infrastructure (both 36%) as an impediment toresult (13%) – compared with BRIC (42%). growing their business. The situation in mainland China is slightly better but 25% of businessesInfrastructure believe transport infrastructure is holding themHowever, whilst these results offer further evidence back, and 22% cite ICT infrastructure. Businessesof a rapid redistribution of economic power, past in Brazil and Russia are slightly less dissatisfied withinvestment in infrastructure remains a huge their ICT (16%) but more than one in five cite localadvantage for businesses in mature markets. transport infrastructure as a growth constraint.Indeed, 26% and 21% of businesses in the BRIC Elsewhere, businesses in Turkey (49%) andeconomies cite transport and ICT (Information Thailand (40%) cite local transport infrastructure asand communications technology) infrastructure a constraint on their ability to grow whilst those inrespectively as a constraint on expansion, more Vietnam (39%) and Thailand again (28%) cite ICTthan double the rates in the G7. infrastructure. In Mexico too, more than one in four businesses cite both factors as constraint.14 Grant Thornton IBR
  17. 17. InflationPricesInflationary pressures, driven by loose monetary “Inflation is perhaps the key issue the Centralpolicy and high commodity prices, are loweringreal incomes and reducing spending power across Bank of India is dealing with right now. Withthe globe. In the UK, inflation hit a record high of salaries expected to rise over the next 12 months,5.2% in September, whilst the European Central businesses will be forced to raise prices toBank declined to reduce interest rates in October maintain real profits.”citing a rise in inflation to 3% in the previousmonth. VISHESH CHANDIOK In emerging markets, rates are even higher: GRANT THORNTON INDIAIndia raised interest rates for the 13th time in 19months in October as they try to curb a double-digit inflation rate; in China inflation has easedslightly in recent months but is still running at morethan 5%; and in Brazil inflation stands above target FIGURE 14: PRICES ON THE RISE NET PERCENTAGE OF BUSINESSES EXPECTING TO RAISE SELLING PRICES OVER NEXT 12 MONTHSat more than 7% even as the central bank lowersinterest rates in an attempt to stave off the effects of 50the global slowdown. 45 Expectations for an increase in selling prices 40 35rose strongly between 2010 and 2011: business 30communities in all but one country (Greece) are 25more bullish about increasing selling prices in 2011. 20Expectations for price increases in emerging 15 10markets are strongest, with BRIC economy 5expectations rising by 26 percentage points year- 0on-year compared with the 18 percentage point rise 2003 2004 2005 2006 2007 2008 2009 2010 2011 BRIC – – – – 43 27 21 26 52observed in the G7 economies. G7 8 11 21 25 22 27 9 1 19 At the country level, Argentina (78%), India Global 11 17 26 29 32 30 14 11 27(64%), Botswana (61%), Turkey (60%) and South SOURCE: GRANT THORNTON IBR 2011Africa (57%) head the list of economies whereprices are expected to rise over the next 12 months.At the other end of the scale, the majority ofbusinesses in Japan (-32%), where deflation remainsa major concern despite interest rates being nearzero, expect to reduce prices. Businesses in thetroubled PIGS economies – Greece (-5%), Ireland(-3%) and Spain (0%) – are also looking to drop ormaintain prices. Grant Thornton IBR 15
  18. 18. However, the most recent quarterly IBR results Salariesoffer some hope that inflation may ease over the Salary expectations have improved from 2010 at thenext 12 months. Globally the proportion of global level: 64% of businesses expect to offerbusinesses expecting to increase selling prices over salary increases (matching inflation or higher) overthe next 12 months declined from 30% in Q2, to the next 12 months, compared with 51% in 2010.22% in Q3. In mature markets, there were some Employees in the Nordic region (84%), Latinparticularly large quarterly drops, led by the America (83%) and ASEAN (82%) appear mostNordic region (18 percentage point drop), North likely to get a pay rise in 2012, with those in theAmerica (14) and the EU (12). The declines in PIGS (47%) and EU (60%) least likely. At theemerging markets were less severe, but expectations country level, employees in South Africa (92%),dropped in the BRIC economies by 9 percentage Argentina and Chile (both 91%) look set to benefitpoints and in APAC (excl. Japan) and Latin from higher wages over the next 12 months. ThoseAmerica by seven and six percentage points in Ireland (14%), Greece (16%) and Japan (27%)respectively. are unlikely to be as fortunate. At the global level, 15% of businesses expect to offer employees real salary rises (that is above the rate of inflation). In Latin America this rises to 22%, followed by BRIC, APAC (excl. Japan) and ASEAN (all 20%). At the other end of the spectrum the pressures on businesses in the eurozone are evident: just 7% of businesses in the currency union plan to offer above inflation pay rises, dropping to 4% in the PIGS economies.16 Grant Thornton IBR
  19. 19. Inflation in 2012Wage-price spirals describe a vicious cycle Those economies in the lower leftwhere the two sides of the wage bargain quadrant appear to have less to fear from(employers and employees) try to keep up with inflation in 2012. The results tie in with recentinflation to protect real incomes (profits and announcements from the Bank of England andsalaries). The graphic below shows where the ECB which expect inflation to ease over thebusinesses are looking to boost both salaries next 12 months. This should boost real incomesand selling prices over the next 12 months, and and therefore consumer spending power inso which economies are most vulnerable to countries such as Greece, Germany, Francesuch cycles. Ireland, Italy, Spain and the United Kingdom. Those economies in the upper right Meanwhile, the spectre of deflation does notquadrant appear in most danger from rising look set to disappear in Japan.inflation over the next 12 months. The CentralBank of India’s battle with inflation is welldocumented, and the results suggest it willcontinue throughout 2012. Other largeemerging economies, such as Brazil, China,Mexico, South Africa and Turkey also findthemselves in this quadrant.FIGURE 15: EXPECTATIONS FOR SALARIES AGAINST SELLING PRICES Lower selling prices Higher selling prices Higher salaries Higher salaries India Chile South Africa Malaysia Turkey Mexico Brazil Hong Netherlands Singapore Kong Georgia Canada Philippines US Argentina Poland China (mainland) Sweden Russia Denmark Australia Switzerland Botswana Taiwan Belgium Finland France New Zealand Vietnam Japan UAE Armenia Spain Germany UK Greece Ireland Italy Thailand Lower selling prices Higher selling prices Lower salaries Lower salariesSOURCE: GRANT THORNTON IBR 2011 Grant Thornton IBR 17
  20. 20. EmploymentHiring FIGURE 16: HOW EMPLOYMENT EXPECTATIONS TRACK RECORDED CHANGES (2002-11) NET PERCENTAGE OF BUSINESSES EXPECTING/REPORTING INCREASES IN STAFF LEVELSNowhere is the polarisation between emerging andmature markets more stark than in the state of 50labour markets. Governments in mature markets 40 30are currently grappling with high unemployment 20rates (more than 9% in the United States and 10France; more than 20% in Spain) as jobs disappear 0in the public sector and businesses in the private -10 -20sector remain cautious of overextending themselves 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011with the outlook so uncertain. Meanwhile, the Actual 11 8 26 31 44 41 21 -8 23 –focus in emerging markets is weighted towards Expected – 14 25 34 35 45 33 -4 20 28upskilling the workforce and attracting talented SOURCE: GRANT THORNTON IBR 2011members of the diaspora home. Employment opportunities have certainlyincreased over the past 12 months: globally, net23% of businesses hired staff over the past 12months, up 31 percentage points year-on-year.Regionally, hiring was strongest in APAC (excl. BUSINESSES EXPECTING TO INCREASE EMPLOYMENT OVER THEJapan, 40%) and Latin America (39%) and weakest NEXT 12 MONTHSin the eurozone (6%). However, the biggest swingwas observed in North America where net 27% of % 28businesses boosted staff numbers over the past 12month, a 57 percentage point rise from 12 monthspreviously. Looking ahead, the economic and politicalturmoil of 2011 has certainly slowed employmentgrowth expectations. Globally, net 28% ofbusinesses expect to increase employment over thenext 12 months, up eight percentage points from 12months previously, but below the 33% observed in2008. BUSINESSES WHO HAVE HIRED STAFF IN THE LAST 12 MONTHS %18 Grant Thornton IBR 23
  21. 21. FIGURE 17: EXPANDING EMPLOYMENT OPPORTUNITIES FIGURE 18: EMPLOYMENT PROSPECTS FALL IN LAST QUARTERNET PERCENTAGE OF BUSINESSES EXPECTING TO INCREASE EMPLOYMENT NET PERCENTAGE OF BUSINESSES EXPECTING TO INCREASE STAFFOVER NEXT 12 MONTHS LEVELS – Q2 VS Q3 Nordic -3 AP 0% AC India 74% ex Nor cl. Viet Ja th A pa nam n- mer BR 14 IC ica 71% % -1 4% -22 Tu rke G7 % -13 y6 % 2% Ch ile Global -11 61 % % EU -8% Phil % ippi e -6 % nes zon 2 55% euro a- ic 7% er Am N tin EA Brazil 54% La AS 50% b Emirates United Ara SOURCE: GRANT THORNTON IBR 2011 9% en 4 Swed % 49 and % ail 49 Th ia org GeSOURCE: GRANT THORNTON IBR 2011 Regionally, businesses in Latin America are the However, whilst the annual comparison looksmost positive; 52% expect to increase employment positive at the global level, the most recentover the next 12 months, up from 39% in 2010. quarterly figures tell a different story. As theBusinesses in APAC (excl. Japan) and BRIC are also recovery stalled in Q3, it is noticeable that theupbeat with 48% in each group expecting to increase proportion of businesses looking to hire fell by 11staff numbers in the year ahead. By contrast just 15% percentage points to 23% globally. Regionally, thereof businesses in the eurozone expect to increase staff were some huge falls with businesses in the Nordiclevels in 2012, falling to -3% in the PIGS economies. region (30 percentage point drop), North America Given the economic backdrop it is perhaps (22) and APAC (excl. Japan) (14) all seeingunsurprising (yet nonetheless of concern to mature employment plans contract sharply.market governments) that businesses in emergingmarkets are most upbeat about hiring staff over thenext 12 months. In India, which has yet to fullybenefit from its demographic transition, businessesare the most positive about hiring plans in 2012(74%). Job opportunities in Vietnam (71%), Turkey(62%) and Chile (61%) are also expected toincrease significantly. Of mature economies, onlySweden (49%) makes the top 10. Grant Thornton IBR 19
  22. 22. Skilled workers FIGURE 19: BUSINESSES IN EMERGING MARKETS STRUGGLING FOR SKILLED LABOUR PERCENTAGE OF BUSINESSES CITING A LACK OF SKILLED WORKERS AS A CONSTRAINT ON GROWTHWith unemployment rates high, a lack of skilledworkers is not a major issue in many mature 45markets. However, higher growth rates, lower 40 35unemployment and less capital-intensive industry 30in emerging economies make it a key issue 25constraining businesses in these markets. Indeed, in 20the BRIC economies more than two in five 15 10businesses (41%) believe an inability to get the right 5workers is dampening their growth prospects, up 0from one in four in 2010. This compares to just 2003 2004 2005 2006 2007 2008 2009 2010 2011 BRIC – – – – 39 34 31 25 4123% of businesses in the G7. G7 31 23 28 32 36 35 27 21 26 With the strength of the recovery seemingly Global 31 21 27 31 34 32 25 17 23ever more dependent on emerging economies, the SOURCE: GRANT THORNTON IBR 2011concern is that the skills of workers may not be ableto keep up with demand. A lack of skilled workersis a major concern for businesses in Botswana(53%), Brazil, India (both 50%) as well as Turkey(38%), mainland China (36%) and South Africa(36%). By contrast, just 17% of businesses in boththe United States and the United Kingdom, whereunemployment rates remain stubbornly high,believe a lack of skilled workers is holding themback. “Finding the right workers is a serious issue for businesses amid near record low unemployment. Businesses urgently require more skilled workers to fuel growth.” MADELEINE BLANKENSTEIN GRANT THORNTON BRAZIL20 Grant Thornton IBR

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