Large political events such as Brexit and the US elections are starting to have knock on effects on economic performance, in particular in the regions most exposed to the Anglo-Saxon powerhouses.
According to a study by Grant Thornton, conducted among 2,600 business executives in 37 economies, major economies across the globe are seeing a pronounced change in economic sentiment over the last quarter.
The sliding in confidence in the UK, down 19 percentage points, mirrors the unfolding of Brexit. Before the turn of the year, optimism was riding high at 74%. But then, in the lead up to the vote, it fell away sharply to 40%, reaching its lowest levels since the start of 2013 with news of the result. The trend is not just true for business confidence, say the authors, but is visible across seven out of eight key business indicators studied. Only export prospects have risen, up 10pp to 19%, on the back of the cheaper pound vis a vis the euro.
Ed Nusbaum, Global CEO of Grant Thornton, highlights that “UK businesses expect their economic fortunes to begin to slow down, with low optimism reflected in expectations of a weaker performance.”
Confidence has been hit across parts of Europe, too, where economies are waking up to a post-Brexit reality. Ireland (-24pp), France (-18pp) and Spain (-19pp) saw significant declines in sentiment, with the EU and the Eurozone on the whole both suffering a decline of -7 percentage points.
In the US, optimism dropped by 1pp, as US companies are feeling shaky in the lead up to next week’s presidential election, contributing to a significant 11pp fall over the year. Looking ahead, lower levels of confidence are expected to affect performance, with companies anticipating a fall in revenue (-5pp), a decline in investment in plants and machinery (-4pp) and selling prices (-2pp). Across the board the US however tells a slightly different story than Europe, says Nusbaum, as some areas of investment are holding up a little better. Mexico, one of the US’s main trade partners, took a 22pp tumble in the last three months alone.
The data from Grant Thornton shows that a significant increase in economic uncertainty (+6pp) has materialised over the last three months, making it now the biggest constraint for businesses worldwide. “Political events like Brexit and the US presidential election understandably rattle the global economy and test the resilience and elasticity of businesses worldwide. In general, businesses do not like uncertainty, and that is what is happening,” comments Grant Thornton’s CEO.
“The outcomes of political events take time to unfold and we have little choice but to be patient. During the unfolding, however, policymakers must ensure open dialogue with the business community, so that shocks and surprises are kept to a minimum.”