• Global survey finds Brexit fears and continued deflation affecting European business optimism

Global survey finds Brexit fears and continued deflation affecting European business optimism

  • Business optimism in EU at net 34% in Q1 2016, lowest since Q4 2014
  • UK business optimism falls 29pp in Q1 – biggest of any EU country surveyed
  • Globally, business optimism at three-year low
  • Only 35% of businesses globally expect to increase revenue over the next 12 months – lowest since Q2 2012

New research from Grant Thornton’s International Business Report (IBR), a quarterly global business survey of 2,500 businesses in 36 economies, finds that optimism among firms in Europe has fallen away in the first quarter of 2016 as the referendum on the UK’s membership of the EU approaches. Globally, business optimism has dropped to its lowest level in three years with most regions reporting a slump in confidence.

The IBR finds that optimism among businesses across the European Union has fallen to 34% in Q1 2016, down from 38% in Q4 2015 and the lowest figure since Q4 2014. Contributing significantly to this fall is the UK, where business optimism fell from 73% to 44% - the biggest fall of any EU nation in the research. However, optimism has increased in Italy (32% to 50%) and Germany (35% to 38%).

The research also finds that a potent combination of fragile financial markets, volatility in oil prices, concerns over terrorist attacks and political uncertainty including the prospect of the UK leaving the EU and the US Presidential race has led to the majority of regions globally reporting a fall in their economic outlook. Expectations for revenue, exports and R&D investment have also fallen.

Vassilis Kazas, Managing Partner at Grant Thornton Greece, said:

“A web of factors is creating uncertainty and affecting European business sentiment, not least the upcoming referendum on the UK’s EU membership. Optimism over the outlook for the UK economy has plummeted, reflecting wider uncertainty over which way the vote will go, and evidence suggests this is having a knock-on effect across the continent.

“However, the Brexit question is not the only factor affecting businesses. Growth in Europe remains slow and the spectre of deflation continues to loom large. Plans to increase selling prices among EU businesses have almost ground to a halt, which reflects the extent of the pressures firms currently face.”

The IBR finds that the proportion of businesses across the EU expecting revenue to increase over the next 12 months has fallen to 40% in Q1, driven by big falls in the UK (63% to 51%), Italy (46% to 34%) and Greece (38% to 28%). Expectations that selling prices will increase have fallen to just 7% in the EU in Q1, the lowest figure recorded since Grant Thornton switched from annual to quarterly research in 2010.

Globally, business optimism fell to net 26% in Q1, the lowest quarterly figure since Q4 2012. The trend is evident across the globe, including the G7 (down 7 percentage points in Q1), EU (down 4pp), North America (down 6pp) and Asia Pacific (down 10pp). 

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