Global Business Confidence Collapses To Post-Lehman Lows

As we noted here, despite record high stock prices and talking-heads imploring investors to believe CEOs are confident, they are not (consider the clear indication of a lack of economic confidence from tumbling capex and soaring buybacks), That is further confirmed today as Markit's survey of over 6000 firms showed optimism falling sharply in October, dropping to the lowest seen since the survey began five years ago. Hiring and investment plans were also at or near post-crisis lows, while price expectations deteriorated further. More worrying, perhaps, is the US is not decoupled whatsoever, with future expectations of US business activity at the lowest since the financial crisis.

The Markit Global Business Outlook Survey, which looks at expectations for the year ahead across 6,100 companies, showed optimism falling sharply in October, dropping to the lowest seen since the survey began five years ago. Hiring and investment plans were also at or near post-crisis lows, while price expectations deteriorated further.

Long list of worries

The surveys highlight a growing list of concerns among companies about the outlook for the year ahead that led to a cooling of business optimism in recent months.

Key threats include fears of a worsening global economic climate, and notably a renewed downturn in the Eurozone, the prospect of higher interest rates in countries such as the UK and US next year, geopolitical risk emanating from crises in Ukraine and the Middle East, plus growing political uncertainty in many countries, notably the US, UK and Japan.

“Clouds are gathering over the global economic outlook, presenting the darkest picture seen since the global financial crisis. Companies’ hiring and investment intentions have both fallen to post-crisis lows alongside the bleakest outlook for future business activity seen over the past five years.

“Inflationary pressures are expected to ease further, meaning central banks will have leeway to keep policy looser for longer to help support economic growth, especially as the risk of deflation remains a major worry.

“Of greatest concern is the slide in business optimism and expansion plans in the US to the weakest seen over the past five years. US growth therefore looks likely to have peaked over the summer months, with a slowing trend signalled for coming months.

“There’s also little sign of the Eurozone’s malaise ending any time soon, as companies have become even less optimistic about the outlook. Confidence is weakest in the core countries of Germany and France, with the gloomy mood in the latter being highlighted by France being the only country in the survey in which companies expect to cut staffing levels over the coming year on average.

“The Eurozone’s ongoing weakness remains one of the major concerns seen in the global survey, and especially in the UK, where optimism waned further from the post-crisis high seen at the start of the year. However, firms in the UK remain more optimistic than in any other major developed or emerging country, suggesting the UK will continue to outperform its peers in 2015, albeit with growth slowing from that seen in 2014.

“Optimism in Japan continued to lag behind that of the US, UK and even the Eurozone, dropping to a twoyear low to suggest companies have become increasingly disillusioned with the potential for ‘Abenomics’ to boost growth, although there are signs that Japan’s recent deflation-beating policies will continue to drive prices higher next year.

“A key factor that has held back economic growth in recent years has been the disappointing performance of major emerging market economies, and this looks set to continue, and perhaps even intensify, over the coming year. Across the four ‘BRIC’ emerging markets, business optimism has sunk to the lowest seen since the financial crisis. Russia is the biggest concern, with sanctions, a spiralling currency and uncertainty driving business expectations down sharply to a new low. A slight upturn in business expectations in China provides some hope that companies there are at least not expecting a hard landing.”

As Markit reports, the US is not immune...

“This survey is a timely reminder that the U.S. economy has not been immune from weakening global business conditions, with euro area woes and heightened geopolitical risk weighing on firms’ business outlook and job hiring intentions for 2015.

“U.S. companies reported the lowest degree of confidence since the survey began in late 2009, reflecting domestic concerns and a subdued external demand environment.

So QE managed to surge inequality, did nothing for wages, and achieved nothing in sparking animal spirits... but apart from that it was a great success.

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