New research from Grant Thornton’s International Business Report reveals that businesses in developed markets look set to drive global business growth prospects in 2014, while peers in the BRIC and other emerging economies face a more challenging period.

The Grant Thornton International Business Report  quarterly research data for the fourth quarter of 2013 to December highlights a reversal of sentiment across G7 businesses and the euro zone economies with optimism levels regarding future economic prospects improving significantly. 

In stark contrast, South African privately held business owners and the emerging markets in the BRICregion are expecting a far more pessimistic outlook for the year ahead.

For the fourth quarter of 2013, when South African business owners were asked how optimistic they are about their country’s economy in the next 12 months, a dismal 39% expressed optimism about future prospects.  This is down 10% compared to Q4 2012 (49%), and it is nearly 20% more pessimistic than responses which were recorded in Q4 2011 (58%).

This time last year, business optimism in the G7 economies stood at a pessimistic response figure of -16% compared to +39% in the BRIC economies. However thepicture heading into 2014 is markedly different with optimism in the G7 rising to +28%, driven by improvements in Japan, the UK and US and equating to an overall increase in optimism levels of 44 percentage points.

Optimism in the BRICs has fallen by 17 percentage points to 22% with Brazil hitting an all-time low (10%) and Russia at its lowest level since 2009 (1%).

“The future situation in the BRIC economies is much more difficult,” says Deepak Nagar, national chairman of Grant Thornton SA. “The prospect of the US Federal Reserve tapering its extensive quantitative easing programme sent emerging markets into a spin in 2013 and the signs are that this will finally happen at some point in 2014.”

Nagar adds that growth has slowed markedly in all four BRIC economies and while the outlook for China remains more stable, Brazil, India and Russia face serious economic and political challenges over the next 12 months.

This change in levels of business confidence feeds directly into business growthprospects – a topic which is also well represented in the Grant Thornton IBR research.   Just 12 months ago in December 2012, 39% of business leaders in both the G7 and BRIC economies cited a lack of demand as a constraint on growth. This declined to 29% in Q4-2013 in the G7 region but, in stark contrast, this figure rose slightly to 40% with more unnecessary pressures further reducing demand in the BRICs.

The fourth quarter data for 2013 highlighted that 18% of South African businessexecutives surveyed are lamenting lack of demand and a shortage of orders as a constraint to business growth.  This statistic has been fairly static since 2011 which also emphasises a stagnant economy in which demand has notgrown for more than 36 months (Q4:2012 – 19%; Q4:2011 – 19%). 

But all is not rosy in the eurozone
A wide divergence in the outlook between Germany and France causes resurgence of instability fears for 2014

The Q4 research from Grant Thornton’s International Business Report (IBR) to December 2013 reveals a chasm in the economic outlook of the eurozone’s two largest economies. While French business leaders rank as the most pessimistic in the 45-economy survey of 3,500 businesses, German peers continue to be optimistic about future economic growth, creating an imbalance which could create instability in the eurozone and pose a threat to economic recovery.

However,the IBR results also highlight resurgent business confidence in Ireland as an example of how eurozone economies can turn their fortunes around.

Business optimism across the eurozone has improved markedly over the past 12 months,rising from -22% in Q4-2012 to +8% in Q4-2013. The improvement is led by the currency bloc's most important economy, Germany, where optimism has risen 30 percentage points to 51% over the same period with expectations for revenue(51%), profit (46%) and export (26%) growth all up from this time last year.

In contrast, no business community is as downbeat for 2014 as that of France.  At -38%, French business leaders are more pessimistic than peers in Greece (-20%), Spain (-9%) or Italy (-4%). France also ranks last globally for the revenue (8%) and profit (-4%) growth expectations in 2014.

Grant Thornton South Africa’s national chairman, Deepak Nagar, says: “France and Germany sit at the heart of the eurozone but their economies are travelling at very different speeds and directions.  This imbalance in the eurozone is a concern and could put pressure on the single currency. Unlike Greece, Portugal or Ireland, France has the economic weight to cause a substantial problem that central banks might struggle to contain.

“In addition, any form of instability in the eurozone would directly affect Africa, and South Africa for that matter, as this region is one of the country’s largest trading blocs,” he adds.

As business leaders plan for 2014, growth prospects in the G7 look more robust but uncertainty is growing in the BRICs and other emerging economies.

“The hope is that we are moving toward a more balanced global economy with fewerextremes. This should support business growth prospects; greater balance and less volatility means businesses can plan for the future and make decisionswith greater certainty,"
Nagar concludes.