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The recovery in economic optimism that started in the fourth quarter of 2010 is gathering steam going into the first quarter of 2011, finds the CFO Innovation Asia Business Outlook Survey for the first quarter of the year.

The survey says five out of ten (54%) of the executives surveyed are more optimistic or very optimistic about the growth prospects for the economy where they are based, compared with 47% in the previous survey. The proportion of business executives who are less optimistic or not optimistic at all has fallen to 17%, from 19% in the previous survey and 32% in third quarter 2010.

Confidence in company performance has similarly risen, but still below year-ago levels. Fifty seven percent of respondents now say they are optimistic about the growth prospects for their own company, compared with 50% in fourth quarter 2010. But that is still lower than the 61%-67% level from a year ago. At 8%, the level of pessimism on company performance is the lowest ever since this survey was started in September 2009.

An even higher proportion is bullish on sales and profits. More than eight out of ten (82%) expect sales at their company to increase in the next 12 months, a marked rise from the 68% who said the same in the previous quarter. Sixty five percent anticipate higher profits (fourth quarter 2010: 57%).

The survey also finds that capital and other spending will remain relatively strong. The majority (52%) say their company will increase capital spending (previous survey: 49%). Forty-six percent will increase spending on marketing and advertising, essentially unchanged from the previous quarter. The proportion of companies that will increase M&A activity has nearly doubled to 31%, from 17% in the previous survey.

In 2011, companies will accelerate hiring as six out of ten respondents see higher employee numbers in the next 12 months, a significant improvement from the the 50% who said the same in the previous quarter. They will be paying higher salaries as well, according to 79% of the executives surveyed (previous quarter: 69%).

While consumer demand remains the No. 1 external concern for businesses in Asia, the volatility in foreign exchange rates has overtaken government regulations as the second-ranked worry, with inflation as the third most serious concern (foreign competition was No. 3 in the previous survey).

Going forward, the strategic priorities remain the same as in the previous quarter: expand to new consumer segments and markets, and strengthen sales, marketing and distribution. A large majority (69%) rank expansion into new consumers segments and/or geographical markets as a top-three strategic priority. Fifty three percent will focus on sales, marketing and distribution, while 41% will strengthen managerial and operational capabilities. As in the previous quarter, cost cutting has dropped down the list of priorities, though it is still a significant focus (37% will reduce direct costs; 33% will reduce overhead costs).

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