IBR 2013 Global economy

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IBR 2013 Global economy

  1. 1. GRANT THORNTON INTERNATIONAL BUSINESS REPORTGlobal economy in 2013:uncertainty weighing on growth
  2. 2. Contents01 Foreword02 The past 12 months04 The year ahead06 Business confidence08 Business operations13 Investment15 Inflation18 Employment22 Access to finance24 Topical issues32 Methodology & IBR participants
  3. 3. Foreword ED NUSBAUM CHIEF EXECUTIVE OFFICER GRANT THORNTON INTERNATIONAL LTDWe have seen significant political economy has slipped back into With uncertainty prevailing, reasonchange over the course of 2012, with recession. might well tell business leaders to buildpresidential elections taking place in Emerging economies are growing cash levels and wait for a sustainedsome of the largest economies in the faster, but challenges remain. In recovery before investing. However weworld such as China, Egypt, France, China, the new leadership is also encourage our clients to listen toMexico, Russia and the United States. expected to focus on avoiding the their instinct: with interest rates low andThese leaders and their peers across middle income trap which will mean talent plentiful in mature economies, thisthe globe face a number of key sacrificing faster for more sustainable is the perfect time to invest in both theirchallenges in the face of continuing growth. Reforms to open up the people and their operations. Investingeconomic uncertainty. Uncertainty Indian economy to foreign direct now could help them to get ahead of thecontinues to hamper business growth investment have met with stiff competition when the global economyprospects. resistance and the high inflation rate is on a surer footing. Meanwhile, Agreement on a series of tax persists. Signs of reform in Russia are business leaders in emerging economiesrises in the United States pulled the tepid and the government budget should consider their internationaleconomy back from the brink of the remains highly reliant on the price of expansion strategy – picking up‘fiscal cliff’, but tough negotiations on oil and gas. Brazil has barely grown distressed assets at low cost in maturethe debt ceiling and spending cuts over the past 24 months, although economies could offer technology andremain. Deliberations also continue in interest and unemployment rates skills transfers, allowing them to movethe eurozone with the sovereign debt have dropped to record lows. The onto a higher growth plain by offeringcrisis still far from resolved and splits new administration in Mexico has higher value-add products and services.developing between northern and targeted higher growth and greater Conditions are tough, but bysouthern states, and between those security. Maritime disputes are applying both reason and instinct towithin and outside the single currency. threatening to upset relations in their decision making, dynamicPolitical deadlock and another round Southeast Asia, whilst the legacy of businesses can navigate through theseof elections in Japan is not helping the Arab Spring is still reverberating strong economic headwinds in 2013.recovery from the devastating tsunami across the Middle East and North The growth prospects of those thatand earthquake in 2011, and the Africa. do, look very healthy indeed. Grant Thornton IBR 1
  4. 4. The past 12 months 2 Mar 2012 25 of the 27 members 31 Mar 2012 Aung San Suu of the European Union Kyi elected to (excluding UK, Czech Parliament as 18 May 2012 Facebook IPO is hit Republic) sign a new Myanmar by technical problems “fiscal compact” opens up to and stock loses 25% 24 Jun 2012 Mohamed Morsi outside world over next six months of the Muslim 23 Jan 2012 EU places further Brotherhood sanctions on elected President trade with Iran of Egypt 5 May 2012 The Socialist 21 Feb 2012 Eurozone finance ministers reach Francois Hollande agreement on wins the French Kim Yong Kim Presidential 16 Apr 2012 2 Feb 2012 Elizabeth II second Greek celebrates chosen as election and 9 Jun 2012 bailout worth Spain requests loan 5 Mar 2011 Vladimir Putin 60 years as €130-billion elected for a President of promises a of up to €100bn World events head of the third presidential World Bank 75% top rate from European UK and the term of income tax Financial Stability Commonwealth Facility to recapitalise its banks 2010 IBR releases Women in senior Slowdown in management on High price of oil 16 May 2012 30 Jan 2012 8 Mar 2012 workplace stress, the rise in Europe driving business as businesses adjust as peers in consideration of to more realistic emerging markets alternative fuel performance goals fall away vehicles Business Single Businesses 9 May 2012 7 Feb 2012 3 Jan 2012 confidence on currency receives increasingly a knife edge welcome boost looking to heading into from eurozone overseas M&A 2012 business leaders Improving in hunt for growth business optimism 2 Apr 2012 in mature 0% economies offers hope for global recovery 19%2 Grant Thornton IBR
  5. 5. BAE-EADS merger 10 Oct 2012 cancelled with German, French and UK governments unable 18th Party Korean rap video 21 Dec 2012 15 Nov 2012 27 Jul 2012 2012 Olympic and to reach agreement Congress ends ‘Gangnam Style’ Paralympic on ownership with President-elect becomes first to Spain win the1 Jul 2012 Games Xi Jingping raised reach 1 billion views 2012 European 22 Aug 2012 opens in Russia joins World Trade to General on YouTube football London Organisation, 19 years Secretary and championships after talks began Commander-in-Chief 2 Jul 2012 Enrique Pena Nieto Barack Obama reelected as American 6 Nov 2012 2 Jan 2013 Apple 19 Sep 2012 wins the Mexico President of the United Taxpayer Relief launches Presidential election States and promises to work Act of 2012 the iPhone5 promising greater with Republicans to pull back signed in security and growth from the looming ‘fiscal cliff’ United States 2011 23 Nov 2012 26 Ju1 2012 6 Nov 2012 3 Sep 2012 Big sporting events Performance of EU business survey Four in ten key to attracting cleantech sector reveals majority businesses globally investment, say shining through bleak support for a more see revenue hit by emerging economies economic outlook diverse audit market eurozone crisis Strong support for greater 10 Dec 2012 8 Aug 2012 shareholder Red tape threatens to involvement in obstruct globalisation setting CEO opportunities for compensation dynamic companies 23 Oct 2012 Glimmer of hope for Support for fiscal measures 3 Jul 2012 global economy as grows amongst businesses business investment as confidence and picks up investment drop sharply 23% 8% Grant Thornton IBR 3
  6. 6. The year aheadThe global economic outlook remains highly Growth rates in emerging economies look veryuncertain. The eurozone sovereign debt crisis is healthy by comparison. China’s growth rate isperhaps the key challenge, and not just for business expected to pick up to 8.2% in 2013, from 7.8% inleaders in Europe. The European Union (EU) is 2012, even as the new leadership tries to moveChina’s largest trading partner, and China is the economic drivers away from exports and 1.9 2.0EU’s second largest trade partner after the United investment towards consumption. Growth in India CanadaStates. China remains the world’s largest exporter, slipped to a nine-year low in 2012 as persistent highbut the slowdown in Europe has weighed on inflation cut into consumer spending power andeconomic growth. political gridlock hampered meaningful economic Growth rates in and around Europe look set reforms. However there are signs of change, withto disappoint over the next 12 months. Having the lower house of Parliament recently voting tocontracted by 0.4% in 2012, the eurozone is allow FDI in the retail sector and growth isexpected to expand by just 0.2% in 2013. Despite expected to quicken to 6.0% in 2013. With unrestbeing outside of the single currency, the United in the Middle East persisting, growth of 3.8% in 2.2 2.1 United StatesKingdom is expected to post growth of just 1.1% Russia in 2013 will be underpinned by high oilin 2013, following a forecast contraction of 0.4% and gas prices.in 2012. The emerging economies of central and Growth prospects in Latin America are alsoeastern Europe are expected to grow faster in strong. The Brazilian economy has endured a2013 (2.6%) but their rates of expansion remain difficult past 24 months of little growth, but isdepressed by a slowdown in foreign direct forecast to expand by 4.0% in 2013. Mexico, whichinvestment (FDI) inflows. bounced back strongly from the recession north of Across the Atlantic, economic growth in the its border is expected to grow by 3.5% in 2013,United States remains weak and unemployment following expansion of 3.8% in 2012, although thehigh. Democrats and Republicans eventually ambitious reform agenda set out by the newreached a deal to avert the so-called fiscal cliff, but administration could see growth push up towardsthis focused only on the tax side of the equation. 5% by 2020. The region as a whole is forecast toTough negotiations on spending cuts and raising the grow at 3.9%. Forecast growth expansion rates indebt ceiling have been deferred, meaning more Southeast Asia (5.8%) and Sub-Saharan Africauncertainty for businesses in early 2013. The (5.7%) for 2013 are even more impressive, andeconomy is expected to expand by just 2.1% in underline the continuing development of emerging2013, marginally ahead of Canada (2.0%). Having economies.fallen back into recession in the last six months of2012, Japan’s economy is expected to expand byjust 1.2% in 2013.1 Financial Times (2012) – Peña Nieto sets out reform agenda via http://www.ft.com/cms/s/0/46d86a20-3e57-11e2-91cb-00144feabdc0.html4 Grant Thornton IBR
  7. 7. FIGURE 1: FORECAST ECONOMIC GROWTH RATES PERCENTAGE GROWTH IN GDP AT CONSTANT PRICES 4.0 4.1 Commonwealth 2.0 2.6 3.7 3.8 of Independent Central and States Russia Eastern Europe -0.4 1.1 United Kingdom 0.4 0.2 2.2 1.2 Eurozone Japan 5.3 3.6 Middle East and North Africa 7.8 8.2 China 4.9 6.03.8 3.5 IndiaMexico 5.0 5.7 5.4 5.8 Sub-Saharan ASEAN-5 Africa 2.2 3.0 New Zealand 1.5 4.0 Brazil 3.3 3.0 Australia 3.2 3.9 Latin America and the Caribbean 2012 2013 SOURCE: IMF 2012 Grant Thornton IBR 5
  8. 8. Business confidenceBusiness optimism for the year ahead has fluctuated FIGURE 2: MID-YEAR OPTIMISM DISSIPATES ACROSS THE GLOBE NET BUSINESS OPTIMISM (NEXT 12 MONTHS)with the strength of the recovery. At the back endof 2011, global confidence was at its lowest point 50 40since the global crisis began in 2009, and only 30remained neutral (net 0%) due to the strong 20optimism of Latin American businesses (net 61%). 10 Mature economies started to show signs of 0improvement in the first half of 2012 as the -10 -20European Central Bank (ECB) made some positive Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012statements about the level of support it would BRIC 34 41 41 29 39provide for the euro. Global optimism rose to net G7 -12 16 21 -4 -16 Global 0 19 23 8 419% in Q1-2012 and again to net 23% in Q2.However optimism fell to just net 8% in Q3 as SOURCE: GRANT THORNTON IBR 2012hopes for a swift end to the eurozone crisis fadedand commentators started to speculate about theimpact of the United States falling off the ‘fiscal AVERAGE G7 BUSINESS OPTIMISM, 2012cliff’. In Q4, optimism dipped even lower to justnet 4%. % 4 Business optimism amongst G7 businessesturned negative in Q3 (net -4%), indicating thatmore business leaders were pessimistic than wereoptimistic about the next 12 months. This trendcontinued in Q4 with net -16% optimistic for theyear ahead, below the level seen 12 monthspreviously. Although businesses in emerging economieshave remained more confident about the prospectsfor their economies over the next 12 months, theytoo have been impacted by the slowdown in the AVERAGE BRIC BUSINESS OPTIMISM, 2012global economy. The optimism of businesses in theBRIC economies climbed to net 41% in Q1 and % 34Q2 but then dropped back to net 29% in Q3.However, optimism bounced back to 39% in Q4.2 Net figures indicate the proportion of businesses indicating optimism (or an increase) less the proportion indicating pessimism (or a decrease)6 Grant Thornton IBR
  9. 9. FIGURE 3: ANNUAL BUSINESS OPTIMISM BY COUNTRYNET BUSINESS OPTIMISM (NEXT 12 MONTHS) Peru Philippines Chile United Arab Emirates India Brazil Georgia Mexico Botswana Canada South Africa Germany Turkey Armenia New Zealand Norway United States Australia China (mainland) Poland Denmark Argentina Vietnam Sweden Russia Ireland Switzerland Italy Thailand United Kingdom Malaysia Hong Kong Singapore Belgium Finland Greece Netherlands France Taiwan Spain Japan Very pessimistic Slightly pessimistic Slightly optimistic Very optimisticSOURCE: GRANT THORNTON IBR 2012 Grant Thornton IBR 7
  10. 10. Business operationsBusiness growth FIGURE 4: PERFORMANCE INDICATORS – REVENUE, PROFITS AND EXPORTS NET PERCENTAGE OF BUSINESSES GLOBALLY EXPECTING AN INCREASE (NEXT 12 MONTHS)Business leaders’ expectations for the performanceof their own operations have fluctuated along with 80wider economic expectations, indicating how global 70 60economic uncertainty is damaging growth 50prospects. From Q2-2012 to Q3, global business 40expectations for revenue, profit and export growth 30all slid by 5 percentage points. 20 10 Indeed business leaders showed less confidence 0in their business growth prospects across 2012, -10compared with 2011. Global expectations for 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Turnover 44 58 63 61 70 63 11 40 50 48increasing revenue and profitability over the next Exports 15 18 18 20 20 18 4 16 19 1812 months are both still positive, but remain below Profitability 31 42 45 46 52 41 -5 29 39 35levels seen before the global financial crisis of SOURCE: GRANT THORNTON IBR 20122008/9. The proportion of business leaders expecting toincrease revenues over the next 12 months is downin more than half of the economies we surveycompared with 2011. The most notable decline inrevenue confidence is observed in Hong Kong(down 35 percentage points), followed bySwitzerland (down 30), the Philippines, Italy (bothdown 21), France and Spain (both down 20). Themost optimistic business communities in terms ofgrowing revenues are Vietnam (net 92%), India (net82%), mainland China and Georgia (both at net78%). Expectations are far less buoyant in Europe. “The uncertainty in the global economy hasIts economies occupy the bottom eight places of dampened business growth prospects not justour 44 economies surveyed, although only in mature economies, but across the world.businesses in Greece are expecting to see revenuesdecline (net -3%) with those in Spain expecting However, the sheer size and internal demandrevenues to be flat. of economies such as Brazil, point to a much brighter 2013.” MADELEINE BLANKENSTEIN GRANT THORNTON BRAZIL8 Grant Thornton IBR
  11. 11. The proportion of businesses expecting to FIGURE 5: IN SEARCH OF PROFITABILITY – TOP AND BOTTOM 5 COUNTRIES NET PERCENTAGE OF BUSINESSES FORECASTING PROFIT GROWTH (NEXT 12 MONTHS)increase profitability over the next 12 months (net35%) is down on 2011 levels (net 39%). Businessesin very few countries are now more confident inboosting profits than they were 12 months ago.The main exceptions are Peru, where profitabilityexpectations have risen by 16 percentage pointsfrom 2011, and the United Arab Emirates (12 Vietnam: 87%percentage point rise). The economies whereprofitability expectations have fallen most sharply India: 69%include Argentina (down 25 percentage points) –where comprehensive foreign-exchange and importcontrols have been introduced to combat the tradedeficit – and three eurozone nations – theNetherlands (-21) Germany (-18) and Italy (-17). Perhaps unsurprisingly given respective growth China (mainland): 68% Peru: 68%rates, emerging economies fill the top five mostconfident about increasing profits over the next 12months, led by Vietnam (net 87%), India (net 69%)and mainland China (net 68%). Conversely, matureeconomies – including Greece (net -10%) and Japan(net -6%), occupy the bottom five places. Global: 35% Georgia: 67% Expectations for increasing exports fell slightlyto net 18% in 2012, similar to results observed in2008. Businesses in Turkey remain the most Poland: 1% Japan:optimistic for exports in 2012 (net 57%) followed -6%by the United Arab Emirates (net 37%) and India Spain: -3%(net 30%). Interestingly, businesses in Greece, Switzerland: -7% Greece:Ireland and Spain (all at net 28%) are also relatively -10%confident about increasing exports over the next 12months, perhaps reflecting their more expansive SOURCE: GRANT THORNTON IBR 2012focus with domestic demand for their products andservices depressed. PROPORTION OF G7 BUSINESSES EXPECTING A RISE IN PROFITS PROPORTION OF BRIC BUSINESSES EXPECTING A RISE IN PROFITS (NEXT 12 MONTHS) (NEXT 12 MONTHS) % % 27 61 Grant Thornton IBR 9
  12. 12. Demand FIGURE 6: SLOWDOWN IN GLOBAL TRADE PERCENTAGE OF BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED DEMAND TO CONSTRAINA fall in prospects for profits and revenues comes GROWTH (NEXT 12 MONTHS)on the back of more businesses citing a shortage oforders/reduced demand as a constraint in 2012(34%) compared with 2011 (31%). Perhapsunsurprisingly as unemployment persists andgovernments and consumers continue to tightenbelts, it is businesses in troubled Southern Europe – Southern Europe*: 49% Asia Pacific (excl. Japan):Italy, Greece and Spain – which are suffering most 39%from a lack of demand (49%, compared with 32%in 2011). However, this issue is also cited by 39%of businesses in the emerging and largely export-driven economies of Asia Pacific (excl, Japan),indicating how general economic uncertainty isaffecting businesses globally. Conversely, businessesin North (21%) and Latin America (19%) appearrelatively untroubled by levels of demand. ASEAN: 34% Businesses in three Asia Pacific economies – BRIC: 37%Japan (68%), Vietnam (60%) and Thailand (54%)– are most concerned with a lack of demand. Allthree are heavily dependent on exports and the Global: 34%contraction of European and North Americanmarkets is clearly impacting on business growthprospects. Three Southern European economieswhich are in the eye of the eurozone storm – Italy,Spain (both 50%) and Greece (48%) – are next. EU: 33% G7: 33%That the world’s two largest emerging economies –India (46%) and mainland China (42%) – also North America: 21%make the top ten, is a worrying sign for globaleconomic growth. Latin America: 19% * ITALY, GREECE AND SPAIN SOURCE: GRANT THORNTON IBR 2012 “Growth in Europe remains tied to the fate of the single currency and contracting markets are clearly not good for business. However we remain hopeful of a swift resolution that will help both France and the wider continent regain lost competitiveness.” JEAN-JACQUES PICHON GRANT THORNTON FRANCE10 Grant Thornton IBR
  13. 13. FIGURE 7: SQUEEZE ON ORDER BOOKS FIGURE 8: 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 GROWTH CONSTRAINT (NEXT 12 MONTHS) GROWTH CONSTRAINT (NEXT 12 MONTHS) Japan 68 Greece 58 Viet % nam Italy Th 54% 60% Po ail % lan an d5 Ita Be d ly lgi 54 3% 50 um % % 50 Spa Arg % in 5 enti 0% na 4 9% Greece 48 Brazil 49% % % Taiwan 47 India 49% 7% 6% na 4 a4 swa Indi 2% Bot % d4 46 % lan 43 ia % Po ss 42 Ru d an ina ail Ch ThSOURCE: GRANT THORNTON IBR 2012 SOURCE: GRANT THORNTON IBR 2012Bureaucracy PROPORTION OF BUSINESSES GLOBALLY CITING SHORTAGE OF ORDERS/Globally the impact of regulations and red tape has REDUCED DEMAND AS A GROWTH CONSTRAINT (NEXT 12 MONTHS)increased marginally as a constraint on business % 34expansion, from 32% in 2011 to 34% in 2012.Businesses in Latin America are the most concernedabout bureaucracy over the next 12 months with42% citing it as a constraint. However, it is in theeurozone where the effects of bureaucracy haverisen most over the past 12 months. Here 36% ofbusiness leaders cite it as a constraint on growthover the next 12 months, up from 29% in 2011. This is largely driven by a 21 percentage pointincrease in Italy to 54% where the technocraticgovernment of Mario Monti is trying to restore the PROPORTION OF BUSINESSES GLOBALLY CITING REGULATIONS/RED TAPE AS A GROWTH CONSTRAINT (NEXT 12 MONTHS)economy’s competitiveness. Italy sits just behindGreece (58%) and ahead of Poland (53%) and % 34Belgium (50%). In Latin America, businesses in bothArgentina and Brazil (both 49%) are also strugglingwith government interventions. As are businesses inIndia (49%), where corruption and politicaldeadlock over reforms aimed at opening up certainsectors to FDI are hindering growth. Grant Thornton IBR 11
  14. 14. Growth prospects for 2013 Businesses in the Latin American economies of recovering from the devastating earthquake and Brazil, Peru and Mexico as well as in South tsunami of 2011, complete the bottom left Africa appear well placed for growth moving quadrant. into 2013 with both strong order books and Businesses in the lower right quadrant are higher revenue expectations (the upper right confident about revenue growth prospects in quadrant). Growth prospects for other 2013 but less so about orders. They include emerging economies such as Georgia, those in some of the large, rapidly expanding Argentina, Chile and the Philippines also look emerging economies such as mainland China, fairly healthy. They are joined by businesses in India, Russia and Turkey which could have an mature economies such as Canada, Germany impact for longer term global economic growth. and the United States. Meanwhile those in the upper left hand By contrast, businesses in the eurozone quadrant seem to be suffering from increased economies of Belgium, France, Greece, Ireland, competition with strong order books not Italy and Spain expect another tough year in translating into higher revenues. This quadrant 2013. They are all forecasting low demand and includes economies at a variety of maturity low revenues. Poland, which is suffering from levels – Hong Kong, Finland, the Netherlands the regional slowdown, and Japan, which is still Singapore, Switzerland and the United Kingdom. FIGURE 9: EXPECTATIONS FOR ORDERS AGAINST REVENUE Lower revenues Higher revenues Stronger order books Stronger order books Peru Germany Canada Malaysia Philippines Brazil Finland Sweden South Africa Singapore US Mexico Netherlands Norway Argentina Switzerland Australia New Zealand UK Denmark Georgia Hong Kong Chile Global UAE Ireland Botswana Armenia France Russia Turkey Belgium China (mainland) Greece Poland Taiwan India Italy Spain Thailand Vietnam Japan Lower revenues Higher revenues Weaker order books Weaker order books SOURCE: GRANT THORNTON IBR 201212 Grant Thornton IBR
  15. 15. InvestmentFIGURE 10: 2013 INVESTMENT PLANSPERCENTAGE OF BUSINESSES EXPECTING TO INCREASE INVESTMENT (NEXT 12 MONTHS) Latin America BRIC APAC (excl. Japan) ASEAN Global North America G7 EU Plant & machinery 50 44 40 33 35 38 32 26 New building 28 22 19 22 18 22 17 10 R&D 35 44 45 26 23 13 16 18SOURCE: GRANT THORNTON IBR 2012Business investment Almost a third of G7 businesses (net 32%) areWith the global economic outlook so uncertain, planning to increase investment in plant andbusinesses are disappointingly, but understandably, machinery over the next 12 months, and net 17% incautious about investing in the future growth of new buildings but the divergence in priorities oftheir operations. In fact, business expectations for emerging and mature economy businesses isfuture investment have barely moved over the past highlighted by R&D plans. Net 44% of BRIC12 months. The proportion of businesses expecting businesses plan to increase R&D investment overto boost investment in new buildings or R&D are the next 12 months, compared with just 16% of G7unchanged from 2011, and have risen by just one businesses. Interestingly, mainland China leads thepercentage point for new plant and machinery. With R&D charge with net 55% of businesses planninglarge corporates already sitting on over US$4trillion to increase investment in R&D over the next 12of cash reserves, the concern is that a huge source of months, ahead of its fellow BRICs Brazil and Indiapotential private sector growth is lying dormant. (both 38%). Investment sentiment is more buoyant in thehigher growth emerging economies. In LatinAmerica, net 50% of businesses expect to increaseinvestment in plant and machinery over the next 12 NET PROPORTION OF BUSINESSES GLOBALLY PLANNING TOmonths, net 35% in R&D and net 28% in new INCREASE INVESTMENT IN R&D (NEXT 12 MONTHS)buildings. Businesses in Asia Pacific (excl. Japan) %are equally as bullish with net 45% planning to 23increase investment in R&D, net 40% in new plantand machinery and net 19% in new buildings.3 Hogan Lovells research into total cash on the balance sheets of the world’s top 500 non-financial companies:http://www.hoganlovellsevolution.com/ evolution-heatmaps-cash-on-balance-sheet Grant Thornton IBR 13
  16. 16. FIGURE 11: POOR CONNECTIVITY CONSTRAINING GROWTH IN EMERGING ECONOMIESPERCENTAGE OF BUSINESSES CITING INFRASTRUCTURE AS A CONSTRAINT ON GROWTHTRANSPORT INFORMATION AND COMMUNICATIONS TECHNOLOGY Vietnam 4 India 41% Indi Viet a3 nam 2% 9% Th Th 39% ail ail an an d d 38 36 % % Br Tu az rke il 2 y2 6% 9% Phil Bot ippi swa nes na 2 27% 2% Turkey 22 UAE 22% % % Mexico 19 Taiwan 21 % 19% % 21% sia 18 ana Rus es Botsw % pin 20 ilip % Ph an % 18 p Ja 19 ile ile Ch ChSOURCE: GRANT THORNTON IBR 2012Infrastructure Latin American businesses are particularlyEmerging economies are to some degree playing dissatisfied with the quality of local transportcatch up with investment as strong existing infrastructure. 26% of businesses in Brazil, whichinfrastructure in mature economies gives their will host both the next FIFA World Cup andbusinesses a huge advantage in terms of driving Summer Olympic Games, cite transportefficiencies in their operations. More than a fifth of infrastructure as a growth constraint, up marginallyBRIC businesses cite the poor quality of local from 25% in 2011. Elsewhere in Latin America,transport (21%) and information and businesses in Mexico (19%) and Chile (18%) alsocommunications technology (ICT, 21%) cite this factor.infrastructure as likely growth constraints in 2013.This compares to just 9% and 11% respectively inthe G7 economies. PROPORTION OF BRIC BUSINESSES CITING ICT INFRASTRUCTURE AS A CONSTRAINT (NEXT 12 MONTHS) Businesses in India and Vietnam are particularlyconcerned with the quality of local infrastucture. % 21Around two in five business leaders in eacheconomy cite transport and ICT infrastructure asan impediment to growing their operations over thenext 12 months. In both economies, this representsa large increase from 2011 suggesting connectivityissues are getting worse. Over a third of businessesin Thailand, and over a quarter in Turkey alsoexpress dissatisfaction with local infrastructure.14 Grant Thornton IBR
  17. 17. InflationPrices FIGURE 12: PRICE RISES SLOWING NET PERCENTAGE OF BUSINESSES EXPECTING TO RAISE SELLING PRICES (NEXT 12 MONTHS)Inflationary pressures have eased in 2012 comparedto 2011. However if prices rise quicker than salaries, 50real incomes decline thus reducing spending power 45 40and depriving economies of consumer demand. 35Inflation is not high on the agenda of most mature 30economy central banks, many of which have 25launched vast quantitative easing programmes 20 15which pump money into their economies in an 10effort to boost growth through raising liquidity. 5However some higher growth emerging economies 0such as Argentina, Brazil, India, Russia and Turkey 2007 2008 2009 2010 2011 2012 BRIC 43 27 21 26 52 38are grappling with much higher inflation rates, G7 22 27 9 1 19 16although the rate in China has continued to ease. Global 32 30 14 11 27 22 Business expectations for increasing selling SOURCE: GRANT THORNTON IBR 2012prices have fallen by three percentage pointsglobally from 2011. Only seven economies –including Peru (up 24 percentage points), United Some of the biggest drops in selling priceStates and India (both up four) – are more bullish expectations are apparent in Asia Pacific. Theabout increasing selling prices over the next 12 proportion of businesses in Southeast Asia planningmonths. Globally, net 22% of businesses expect to to increase selling prices declined from net 38% inincrease selling prices over the next 12 months, 2011 to net 23% in 2012. In mainland China thewith businesses in the BRIC economies (net 38%) proportion dropped from net 43% to net 29%far more likely to boost prices than peers in the and in Hong Kong from net 40% to net 16%.G7 (net 16%). PROPORTION OF BRIC BUSINESSES PLANNING REAL SALARY PROPORTION OF G7 BUSINESSES PLANNING REAL SALARY INCREASES (NEXT 12 MONTHS) INCREASES (NEXT 12 MONTHS) % % 17 12 Grant Thornton IBR 15
  18. 18. FIGURE 13: WHERE TO GO FOR A PAY RISE FIGURE 14: PRICE WAR – TOP AND BOTTOM 5 COUNTRIESNET PERCENTAGE OF BUSINESSES EXPECTING TO OFFER EMPLOYEES A NET PERCENTAGE OF BUSINESSES EXPECTING TO RAISE SELLING PRICES (NEXT 12 MONTHS)REAL PAY RISE (NEXT 12 MONTHS) Thailand 4 Argentina: 67% 2% India: 61% Per u2 Br 9% az il 2 Ind 9% ia 28 % Botswana: 58% Chil e2 8% South Africa: 51% Russia: 49% Turkey 26 % a 26% Global: South Afric 22% 23% any % G erm % 22 21 ia Ireland: ral nd st -2% ala Au Spain: Ze -8% Switzerland: w Ne -14% Greece: -16% Japan: -32%SOURCE: GRANT THORNTON IBR 2012 SOURCE: GRANT THORNTON IBR 2012 At the country level, businesses in Argentina (56%), especially in Southern Europe (35%), are(67%), India (61%), Botswana (58%), South Africa least likely to get a raise.(51%) and Russia (49%) are most likely to raise At the country level, employees in businessesprices over the next 12 months. At the other end of in Sweden (94%), South Africa (93%), Brazil andthe scale, Japan (-32%) – where deflation remains a Norway (both at 90%) look set to benefit frommajor concern despite interest rates being near zero higher wages over the next 12 months. Those in– expect selling prices to fall. Businesses in Greece Greece (3%), Ireland (17%) and Japan (25%) are(-16%), Switzerland (-14%), Spain (-8%) and unlikely to be as fortunate. In fact, 31% ofIreland (-2%) are also looking to reduce prices as businesses in Greece and 10% in Spain plan toEuropean markets continue to contract. reduce salaries over the next 12 months, which will further squeeze consumer demand.Salaries In terms of real salary increases (those above theWith consumer price inflationary pressures apparently rate of inflation), businesses in Latin Americaeasing, the good news for the global economy is that (25%) are expected to be the most generous, led bytwo-thirds of businesses (66%) are planning to offer Peru and Brazil (both 29%). Thailand tops theworkers a pay rise at least in line with inflation, well rankings with 42% of businesses planning to offerabove the 2010 level (51%) and up slightly from such increases. Conversely just 9% of EU2011 (64%). Employees in Latin America (86%), businesses expect to offer real salary increases overthe Nordic region (84%), North America (79%) the next 12 months, although this rises to 23% inand Southeast Asia (75%) appear the most likely to Germany which points towards a rebalancing ofget a pay rise in 2013. Workers in the eurozone competitiveness inside the single currency.16 Grant Thornton IBR
  19. 19. Inflation in 2012Wage-price spirals describe a vicious cycle where the two Those economies in the bottom right quadrant couldsides of the wage bargain (employers and employees) try find consumer spending falling in 2013 as salaries fail toto keep up with inflation to protect real incomes (profits keep pace with inflation. They include Argentina, Russiaand salaries). The graphic below shows where businesses and two Nordic nations – Finland and Sweden.are looking to boost both salaries and selling prices over In the bottom left quadrant, inflationary pressures arethe next 12 months, and therefore which economies are not expected to surface in 2013. The quadrant includesmost vulnerable to such cycles. Japan where prices are either flat or falling, and the Those economies in the upper right quadrant appear troubled eurozone economies of Greece, Ireland, Italy andmost in danger from rising inflation over the next 12 Spain which are going through an internal devaluation asmonths. These economies include the Latin American they look to restore lost competitiveness in relation to theeconomies of Brazil, Chile, Mexico and Peru. In Brazil, other members of the single currency. Business in otherinterest rates have fallen to record lows with the central EU countries outside the single currency – includingbank apparently tolerating inflation above 5% in a bid Denmark, Poland and the United Kingdom – also appearto stimulate the economy. India also appears in this to be looking to boost competitiveness.quadrant, suggesting the central bank will have to Finally those businesses in the upper right quadrantcontinue to closely monitor an inflation rate which appear set to help boost consumer demand by raisingcontinues to touch double figures. Both African salaries faster than selling prices. Whilst this may squeezeeconomies in our survey – Botswana and South Africa profits in economies such as Germany, Malaysia, Norway– also appear in this quadrant. and Switzerland, it should have some positive feedback effects on economic growth.FIGURE 15: EXPECTATIONS FOR SALARIES AGAINST SELLING PRICES Lower selling prices Higher selling prices Higher salaries Higher salaries Thailand Brazil Peru India Chile South Africa Turkey Germany Australia New Zealand Norway Mexico Switzerland Botswana Canada Malaysia Philippines Georgia Vietnam Global US UAE Argentina China (mainland) Belgium Sweden Russia Hong Kong Poland Finland Netherlands France Singapore Taiwan Japan Armenia Spain UK Denmark Ireland Italy Greece Lower selling prices Higher selling prices Lower salaries Lower salariesSOURCE: GRANT THORNTON IBR 2012 Grant Thornton IBR 17
  20. 20. EmploymentHiring FIGURE 16: HOW EMPLOYMENT EXPECTATIONS TRACK RECORDED CHANGES (2002-2012) NET PERCENTAGE OF BUSINESSES WHO HIRED/PLAN TO HIRE WORKERS (LAST/NEXT 12 MONTHS)The public sector in many mature economies has,and in some cases is continuing to, shed workers as 50governments try to tackle huge deficits and levels of 40 30public debt. Unfortunately, with the economic 20climate so uncertain, job creation in the private 10sector has largely been unable to keep up. In Greece 0and Spain the unemployment rate now tops 25%. -10 -20In France and Italy it is close to 11%. In the United 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Kingdom and the United States the proportion of Actual 11 8 26 31 44 41 21 -8 25 26 –the workforce looking for employment remains Expected – 14 25 34 35 45 33 -4 20 28 27stubbornly just below 8%. SOURCE: GRANT THORNTON IBR 2011 Unemployment rates in emerging economiesare generally lower, with Brazil, China, Russia andMexico all around the 5% mark (the exception isIndia where unemployment is running at 9.8%). PROPORTION OF BUSINESSES GLOBALLY WHICH HIRED WORKERSBusinesses in these economies are more concerned OVER PAST 12 MONTHSwith finding workers with the right skills to helpthem grow their businesses, potentially through % 26offering higher value-add products and services. The stickiness of the labour market globally isevidenced by the IBR figures. Net 26% ofbusinesses hired staff over the past 12 months, a riseof just one percentage point from the previous 12month period. Hiring was strongest in highergrowth emerging economies of Latin America (net38%), the BRIC economies (net 35%) and AsiaPacific (excl. Japan, net 32%), although net 33% ofbusinesses in North America also boosted PROPORTION OF BUSINESSES GLOBALLY PLANNING TO HIRE WORKERS OVER NEXT 12 MONTHSworkforce numbers over the past 12 months, aseven percentage point increase from 2011. % Hiring has been weakest in Europe – just net 2716% of EU businesses hired workers over the past12 months, rising to net 40% in Germany whichcontinues to outperform its eurozone partners. TheEU average is dragged down by Greece (net -33%),Spain (net -22%) and Ireland (net -3%) whereworkforces contracted on average in 2012.18 Grant Thornton IBR
  21. 21. FIGURE 17: HIRING PLANS – PAST AND FUTURENET PERCENTAGE OF BUSINESSES WHO HIRED/PLAN TO HIRE WORKERS (LAST/NEXT 12 MONTHS)PAST 12 MONTHS NEXT 12 MONTHS India 62% India 63% Geo Per rgia Pe u5 ru 59% Tu 2% 59 rke Tu % rke y4 Br y5 az 8% il 4 5% 6% Chil Chil e5 e4 1% 3% Georgia 4 Brazil 50% 0% 40% Germany Vietnam 4 4% 7% 43% da 3 ana ana 4% C % otsw % 35 B 42 a3 % AE ia en an 41 U m tsw Ar d an Bo ail ThSOURCE: GRANT THORNTON IBR 2012 Looking ahead, global economic uncertainty India (net 62%) tops the ranking of economiescontinues to depress business hiring plans. Net looking to expand their workforces in 2013,27% of businesses globally expect to increase followed by Georgia (net 59%) and Peru (netemployment in 2013, down one percentage point 58%). At least 50% of businesses in Turkey, Chilefrom 2011 and below the pre-crisis level of 33%. and Brazil also plan to hire more workers over theHigher growth rates in emerging economies are next 12 months. The highest ranked matureallowing businesses to consider expanding their economy is the United States (net 34%) in 15thworkforces to a much greater extent than peers in place, slightly behind mainland China and Mexicomature economies: net 41% of BRIC businesses are (both net 38%).planning to hire more workers over the next 12 In yet more evidence of how the sovereign debtmonths, with the Latin America average even crisis is damaging business and economic growthhigher at net 45%, and Asia Pacific (excl. Japan) not prospects, the bottom 11 places are taken byfar behind (38%). This compares to just net 24% of European countries. Indeed, the majority ofG7 businesses, and just net 5% in the eurozone. businesses in Greece (net -21%) Spain (net -16%),The North America average remains fairly buoyant Ireland (net -5%) and Italy (net -3%), Poland andby contrast at net 33%. Switzerland (both net -1%) plan to lose workers in 2013. Grant Thornton IBR 19

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