Over Half of Hong Kong Businesses Are Uncertain About Economic Outlook

Global business optimism in the first quarter of 2016 dropped to its lowest level in three years, according to Grant Thornton’s latest “International Business Report” (IBR). However, most of the interviewed Hong Kong-based enterprises are neither optimistic nor pessimistic about the city’s economic outlook over the next 12 months.

The IBR finds that 52.5% of the Hong Kong-based enterprises are neither optimistic nor pessimistic about the economic outlook over the next 12 months, while 22.5% are quite optimistic and 5% are very optimistic.

On the other hand, 20% of the interviewed enterprises of the city are quite pessimistic; none of them are very pessimistic. Meanwhile, 45% of the Hong Kong-based enterprises expect their revenues of this year to remain at the same levels as those of last year and 25% even expect increases in revenues.

On the contrary, the IBR finds that businesses in the rest of the world are more pessimistic about the economic outlook - the overall business optimism has fallen from 36% in Q4 2015 to 26% in Q1 2016.

Over 60% of the Hong Kong businesses interviewed intend to increase salaries. Apparently, Hong Kong businesses are more confident about the economic outlook than other regions.

Over 60% of the Hong Kong employers interviewed stated that they were planning to increase the salaries of their employees in the coming 12 months, whereas 55% said they were willing to offer pay rises in line with inflation and 7.5% said that they would even increase the salaries by more than the inflation.

However, 37.5% of the employers said that they would probably offer no pay rise in the next 12 months, whereas no employers intend to cut wages.

China continues to demonstrate an economic slowdown, which is supported by the drop in overall China optimism from 36% in Q4 2015 to 27% in Q1 2016.

Nevertheless, enterprises in the three major cities such as Beijing, Shanghai and Guangzhou have shown optimism about the economic outlook in the next 12 months – over 80% of the enterprises expect their revenues either to be maintained at the same levels as those of last year or to increase. Particularly, more than half of the Guangzhou-based businesses expect growth in revenues.

“The sentiment of many regions hinges on China’s economy. Although China’s economic slowdown is expected to continue, it is widely expected to fare not as badly as worried," says Daniel Lin, managing partner of Grant Thornton Hong Kong Limited.

"Many firms are still confident about their revenue forecasts and employment plans despite the uncertainty about the external environment."

Enterprises are encouraged to grasp opportunities for investment amid challenges

Globally, business optimism fell to 26% in Q1 2016, which is the lowest quarterly figure since Q1 2013. The downtrend is evident around the world, including the G7 (down 7 percentage points in Q1), EU (down 4pp), North America (down 6pp) and Asia Pacific (down 10pp).

The IBR also finds that the global economy is still gloomy as a result of a mix of factors, such as the weak performance of the financial markets, volatility in oil prices and worries about terrorist attacks.

In addition, political uncertainties such as the risk of Brexit and the US presidential election have also caused the majority of the interviewed businesses around the world to be less optimistic about the economic outlook, hence a fall in expectation of revenues, exports and investment in research and development.

“Global economic downturn is not all about risks and challenges but it can also present opportunities," adds Lin.

"The most dynamic and successful firms are less susceptible to external factors. They should concentrate on their own operations and continue to pursue sustainable development through investment. If they don’t grasp the opportunity for investment now, they may find themselves lagging behind their peers once the economic environment improves.”

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