This report summarises the results of a survey of international business confidence conducted at the RSM Annual Conference in London in November 2012.
The survey gauged the views of over 280 senior leaders from within RSM member firms 70 countries on the following issues:
- Level of Business Confidence
- Climate for Business Start-Ups
- Access to Bank Funding
- Obstacles to Economic Growth
- Appetite for International Expansion
- Growth Trends in Key Service Areas
- Sectoral Demand for Accounting Services
Echoing RSM’s “Prospects for the World Economy 2013” (RSM Talking Points, January 2013) , the business confidence survey reveals major differences between the key regions of the global economy. Overall business confidence is significantly stronger in the Americas and Asia-Pacific than in Europe, reflecting the overhang of debt and slow growth plaguing the latter region.
Unsurprisingly, RSM professionals from the BRIC countries also voice greater optimism than their European counterparts. But survey results from other emerging/developing countries are intriguing and counter-intuitive: While Africa and Middle East enjoy comparatively strong GDP growth, respondents from those regions convey mounting concern over the business impact of corruption and political instability.
Level of Business Confidence
70 percent of respondents from the Americas say that they are “confident” or “very confident” in the economic prospects of their country/region. 63 percent of survey participants from Asia-Pacific voice the same sentiment. By contrast, 44 percent of European respondents hold positive views of that region’s economic prospects in 2013. 32 percent of European participants rate their business environment as “poor” or “very poor”.
The regional data obscures important country variations. For example, business confidence is substantially higher in Germany than in the United Kingdom, whose fiscal austerity programme has tipped the British economy toward a double dip recession. But the regional patterns shown in the business confidence survey are telling, reinforcing statistical analyses of Europe’s grim macroeconomic landscape.
Interestingly, 40 percent of respondents from the Middle East rate business confidence in that region as “poor”. While some Middle Eastern countries display strong GDP growth, the political turmoil following the Arab Spring (vividly dramatized by the civil war in Syria) heightens business risks and discourages capital investment in the region.
Climate for Business Start-Ups
Mirroring the results of the business confidence questionnaire, 71 percent of European respondents report a decline in business start-ups. The main factors impeding small business formation in Europe are (1) slow growth in a region distinguished by a high level of intra-regional trade, (2) continuing uncertainties over the future of the Euro, and (3) limited availability of venture capital and small enterprise loans.
Business start-up activity is more robust in the Americas, Asia-Pacific, Africa and the Middle East, where GDP growth trends and overall business confidence are stronger than in Europe.
Access to Bank Funding
Along with the sovereign debt crisis in the European Union, the contraction of commercial bank lending following the 2008 global financial crisis has impeded economic recovery. The RSM survey indicates that the global credit squeeze is easing. 50 percent of American respondents and 34 percent of Asia-Pacific respondents report improvement in access to bank funding.
Again Europe is the exception to the global trend: 66 percent of European survey participants say that bank lending has declined in the region. Recent initiatives by the European Central Bank to lighten the sovereign debt burdens of Southern Europe permit guarded optimism of a gradual relaxation of constraints on commercial bank lending in the coming year.
Obstacles to Economic Growth
Participant responses to the question on obstacles to economic growth illuminate the differing business environments of the five regions covered in the survey. RSM professionals in the Americas cite regulations, taxes, and funding access as the foremost barriers to growth. High labour costs are the most frequently cited growth obstacles in Europe and Asia-Pacific. Respondents from the latter region also identify exchange rates as a growth impediment, demonstrating the impact of currency appreciation on the export-driven Asian economies.
Amplifying the previously noted responses to the survey question on business confidence, respondents from Africa and the Middle East cite fraud, corruption and political instability as the primary obstacles to growth. Current growth rates in these regions rank among the highest in the world, illustrating (1) the salutary effects of commodity price increases in resource-based economies, (2) growing foreign investment in Africa/Middle East, a rising share of which comes from cash-rich investors from the BRIC countries, and (3) increasing domestic purchasing power in the two regions. But sustainable economic growth in Africa and the Middle East depends on reforms of government regulation and corporate governance as well as increased political stability in countries undergoing democratic transitions.
Appetite for International Expansion
The RSM survey indicates broad optimism about international business expansion. With the exception of Africa, the majority of respondents say that businesses are more likely to expand internationally.
Even the European cohort responded affirmatively to this question (61 percent of the sample). In Europe’s case, weak domestic growth rates boost incentives for companies to look outside national borders for new commercial opportunities.
Growth Trends in Key Service Areas
The survey yields important findings on growth trends in accounting services. Consulting leads growth of services in Europe and the Americas. European respondents also report strong growth in restructuring services. Risk advisory drives services growth in Asia-Pacific and Middle East. Corporate finance and taxes are the leading growth areas in Africa.
Sectoral Demand for Accounting Services
The RSM survey examines demand for accounting services in particular sectors. Respondents in Africa and the Americas report strongest demand growth in banking/financial services and manufacturing. European participants indicate strongest growth in retail/hospitality/leisure, telecom/media/technology and professional services. Middle Eastern respondents identify construction as a growth driver in professional services.
Focus Sectors of RSM
The survey concludes by asking respondents to identify which sector they feel will grow the most in 2013. Again, the responses to this question by RSM leaders highlight the differing economic environments of the five regions covered in the survey.
Participants from Europe and the Americas cite private equity as a high priority sector for RSM. Demand for private equity services is rising as the global recovery proceeds and credit markets stabilise. American and European private equity firms increasingly look to emerging markets for deals that will satisfy the ROI expectations of investors, heightening the need for enterprise valuation and transaction support services.
Respondents from Asia-Pacific identify capital markets and corporate finance as a key sector, indicating growing demand for accounting services to support the expansion of debt and equity financing in that region.
By contrast, RSM accountants in the Middle East and Africa regard financial services as a high priority sector. This illustrates the growing sophistication and increasing depth of the financial sectors of those regions.
Economic Advisor, RSM