Corporate expectations continue to rise: EIU report

When the Corporate Expectations Barometer was launched, it was anyone’s guess how an online survey of business perceptions would fare in predicting the future. The May 2009 baseline survey, conducted by the Economist Intelligence Unit and sponsored by SAP, showed that businesspeople were cautiously optimistic about the year ahead. Seven months later, it appears respondents’ hopeful outlook was warranted. The barometer has gradually risen since May, in line with the improvement in stock indices and the modest rebound of major economies. At the end of November, nearly 3,000 people had taken the ongoing online survey worldwide.

The barometer is a weighted average of five scores: respondents’ expectations of prospects for their company, industry, country, region and the world. Scores are on a 1 to 10 scale, and have gone up in all five areas.

May-09 December-09
Overall index—an average of the five scores below 6.3 7.0
Company score—prospects for “your company” over the next 12 months 7.1 7.5
Industry score—prospects for “your industry” over the next 12 months 6.3 6.8
Country score—prospects for “your country” over the next 12 months 6.2 6.7
Regional score—prospects for “your region” over the next 12 months 6.1 6.9
Global score—global business prospects over the next 12 months 5.9 7.3

Like the stock market, however, the barometer has also showed that concerns linger. Corporate Expectations Barometer: Progress report looks at trends in the barometer through December 2009. Among the findings:

  • Trending upwards. Business sentiment is gradually improving, in line with GDP growth and rebounding stock markets. The full report shows a graph juxtaposing the barometer’s trend-line to that of the Dow Jones Industrial Average, FTSE 100 and Nikkei 225 indices.
  • Better times at home and abroad. Prospects appear to be improving for respondents’ own companies and for the global economy as a whole. Overall, respondents have raised their 2010 global GDP growth forecast to an average of 1.8% in December (up from 0.2% in May). And more executives (29%) expect their workforce to grow than to shrink (19%) over the coming year.
  • Room to improve. Yet overall business sentiment remains somewhat muted, with a score of 7.0 out of 10 (where 1 is the most negative, 5 is neutral and 10 is the most positive), as the durability of the recovery is uncertain. Global GDP growth in the second half of 2009, driven mainly by public spending and inventory restocking, may be unsustainable. In developed economies, unemployment is high and consumer confidence low, hampering growth in export-dependent countries.
  • Deficit woes. Even as many have benefited from industry bailouts, companies are concerned about the longer-term implications of deficit spending. Asked which is more important, stimulating economic growth or curbing government deficits, a surprisingly large minority (36%) sided with curbing deficits. The proportion is higher in North America, where budget gaps have left some states struggling to remain solvent.
  • Bank distrust. Distrust in financial services underscores another obstacle to a sustainable recovery, insufficient bank lending. In September, respondents were asked whether they trusted their country’s financial institutions more or less than they did six months earlier. Only 16% reported feeling more trust; 29% felt less trustful. Worryingly, respondents in financial services were even more negative about their industry: 36% said they were less trustful.

[ad#Google Adsense Horizonal Banner]