Business leaders across the Asia Pacific region report a split in optimism heading into 2017, according to Grant Thornton’s most recent quarterly global survey of 2,600 businesses in 37 economies.
The study reveals that emerging and developed Asia Pacific economies are traveling in different directions when it comes to their outlook for the New Year.
Globally, the research finds that the majority of business leaders start 2017 in a positive frame of mind.
Research from the Grant Thornton International Business Report (IBR) reveals that business optimism among developed Asia Pacific economies has fallen 8pp in Q4 2016 to net -16%. Japan in particular has fallen 8pp to -45%.
However, among emerging Asia Pacific economies, the picture is much brighter. Business optimism has increased by 11pp to 53%. The region’s biggest economy, China, has seen optimism bounce back from 30% to 46% in Q4 2016.
Globally, business optimism at the end of Q4 2016 stands at net 38%. This is an increase of 5pp from Q3 and the highest level since Q3 2015.
“There is a striking split in the direction of travel between business leaders in emerging and developed Asia Pacific countries,” says Daniel Lin, managing partner at Grant Thornton Hong Kong Limited.
“Part of the reason for this could be the likely scrapping of the Trans-Pacific Partnership (TPP), out of which developed economies – like those of Australia and New Zealand – stood to gain the most.
“However, China is looking to implement its own regional economic partnership, which could fill some of that gap. The high levels of optimism in emerging economies reflect what can happen when closer economic ties are in place, with the ASEAN Economic Community agreed in 2015.”
Globally, the increase in optimism reflects a view among the business community that uncertainty over the outcome of major events like the EU referendum and the US presidential election is now behind them.
“Knowing the results will allow businesses to have a clearer steer on key issues such as taxes, jobs and trade policy,” added Lin.
Findings from Grant Thornton’s IBR reveal that across the Asia Pacific region as a whole, the outlook on a number of key indicators is strong heading into 2017.
The proportion of firms expecting profitability to increase over the next 12 months has gone up to 34%, the highest in almost two years.
Employment expectations remain healthy at 29%, and research and development plans for 2017 (31% plan to increase investment) are higher than this time last year (23%) – but down from the 32% recorded in Q3.
Globally, the proportion of firms expecting revenue to increase in 2017 has gone up by 5pp to net 50% - the highest figure in nearly two years. China (+14pp) and the US (+11pp) reported particularly strong swings in revenue expectations in Q4.
But not entirely positive
However, the IBR also reveals that the picture outside Asia is not entirely positive. Business optimism in Mexico has fallen to just 8% in Q4 – the lowest quarterly figure it has ever recorded. In Russia, optimism has fallen 13pp to -7%.
In addition, the proportion of firms in the EU citing exchange rate fluctuations as a constraint on growth has increased by 8pp to 21%, as elections in France and Germany have the potential to cause market uncertainty.
“There will be challenges in 2017, including the impact of further rate rises from the US Federal Reserve,” said Lin.
“But these shouldn’t mean that growth plans across Asia Pacific should be abandoned. They may be focused on investing for greater efficiency, hiring new skilled workers, or researching new markets and services. Dynamic firms with the ability to think long-term and pay attention to their operations will be the big winners.”