Europe looks beyond Greece

Regional business confidence hits fresh high

Before Greece’s 'No' vote on Sunday, business optimism in Europe had surged ahead to its highest level in five years, despite the ongoing uncertainty over the future of Greece and its continued membership of the single currency. According to the Grant Thornton International Business Report (IBR) [ 743 kb ], businesses across Europe and beyond are looking past the problems in Greece to improving growth expectations.

Business optimism around the world jumped in the last quarter, from net 33% to 45%. Confidence in the European Union (EU) increased by 20 percentage points over the quarter to reach 58%, beating pre-crisis highs. Optimism in the eurozone leapt from 34% to 54% over the same period. Germany is now the most optimistic economy in the IBR at 92% (Q1= 59%). Businesses in the UK, Spain, France and Italy also posted significant improvements in their outlook.

Francesca Lagerberg, global leader for tax services at Grant Thornton, commented: “Business confidence in Europe has proved extremely resilient in the first half of 2015. In a period where financial markets and politicians have once again been spooked by the Greek situation, businesses appear to be looking past the issue. Supported by strong revenue and profit growth expectations, businesses are forecasting a strong 12 months. I think that despite the outcome of the referendum in Greece, European businesses will remain optimistic. 

"No doubt there is also a feeling among business leaders that they have seen this before, and that there looks still to be some way to go before it’s resolved. In the meantime, Europe's banks have increased their capital buffers and are thus better placed to cope with a Grexit; other previously troubled economies such as Ireland, Spain and Portugal are growing; while we should remember that Greece accounts for less than 2% of eurozone GDP. That said, business leaders must make sure they keep contingency plans robust and avoid being caught out, should a Greek default cause an unplanned exit from the eurozone. There remains a lot of negotiation to be done between Greece , the ECB and the IMF.”

Optimism in Europe is underpinned by exceptional levels of expectation on revenues: net 52% of businesses expect growth over the next 12 months, the highest since 2008. Germany (91%) leads the way, supported by France, Spain and Ireland, all of which reported increases in expectations. There is also good news for workers in Europe, with net 70% of companies planning to offer their employees pay rises in the next year, up from 55% in the previous quarter.

Francesca Lagerberg continued: “Rising revenue and profitability growth are very welcome signs for the regional economy, particularly given ongoing political uncertainty, and increasing salaries are a sure sign that businesses believe the recovery has truly taken hold. And of course, there is a virtuous cycle here: higher salaries should boost consumption, further boosting business growth.

Global outlook

Europe is not alone in its sentiment that the next 12 months will be good for business. The three largest economies in the world all saw sharp upswings in optimism: the United States (up 11pp to 54%), China (up 8pp to 46%) and Japan (up 25pp to 8%) also report an uplift in levels of optimism.  However, the picture is not universally positive.  Brazil, one of the leading emerging economies of the last decade, is seeing a rapid deterioration in confidence and expectations.  Over the past year optimism has fallen 56pp to -24%, the biggest negative swing reported by a major economy in the survey over this period. Revenue growth expectations there have plummeted by 29pp to 28% over the same period.

Francesca Lagerberg concluded: “With so many large economies reporting increased confidence, the global economy is clearly headed in the right direction. Business growth feeds on confidence - the confidence to make an acquisition, to expand abroad, to hire new people - and we'll be watching closely to see if this momentum can be maintained in the face of some relatively severe geopolitical headwinds."

View the global optimism summary infographic [ 743 kb ]