Global business confidence slips in June 2023, yet remains strong

Each of the six European economies for which combined manufacturing and services data are available saw a drop in confidence since the February outlook survey. A slight pull-back in sentiment was also seen in the US. Meanwhile, optimism in China waned following the jump in sentiment after the removal of pandemic-related restrictions around the turn of the year, according to the latest S&P Global Business Outlook Survey.

Elsewhere, there were improvements to confidence regarding business activity in Brazil, India, Japan, and Russia compared to February’s survey. The weakening of optimism at the global level was mainly a result of a drop in confidence at manufacturing firms, where the net balance fell to 20 per cent in June from 31 per cent in February to run well below the long run average of 31 per cent. The net balance was at 31 per cent in June, down only marginally from February's reading of 32 per cent and in line with the long-run average.

The June outlook survey suggested that inflationary pressures are set to ease over the coming year. At 24 per cent, the non-staff costs net balance was the lowest since the October 2020 survey and down sharply from a peak of 38 per cent this time last year, albeit still above the average since the series began in 2009. The eurozone posted a particularly marked downward shift in non-staff cost expectations.

The reduction in the net balance for staff costs—at 36 per cent from 40 per cent—was less pronounced than that seen for non-staff expenses, hinting that wage pressures are set to remain elevated.

In line with the picture for input costs, firms globally also foresee a moderation of selling price inflation over the year ahead. At 21 per cent, the output charges net balance was down to the lowest since the February 2021 outlook survey.

With input cost and output price expectations moving down in tandem, the impact on profitability was broadly neutral. June saw optimism regarding profits weaken fractionally from February. Firms in the eurozone predicted a decline in profits, but this was outweighed by optimism elsewhere.

Companies worldwide maintained plans to expand workforce numbers over the coming year. At 12 per cent, the net balance was down from that seen in February at 17 per cent, however, to signal a slightly lower degree of confidence than at the start of the year. All monitored countries expect employment to increase over the next 12 months, though only Japan and Russia expect to step up the pace of hiring.

Investment plans were also lowered slightly, but further expansions in spending on capital—net balance of 10 per cent—and R&D—4 per cent—are expected. Growth of capex was most widely predicted in Russia, Japan, and Italy, with the latter leading the way in terms of R&D forecasts. On the other hand, France and the US projected reductions in R&D spending. Bucking the wider trend across the June outlook survey, manufacturers were more optimistic about R&D expenditure than their service sector counterparts.

ALCHEMPro News Desk (NB)