The Economy

Clouds Gathering Over Global Economy, Survey Warns

“There’s little sign of the eurozone’s malaise ending any time soon, as companies have become even less optimistic," says an economist at Markit.
Matthew HellerNovember 24, 2014
Clouds Gathering Over Global Economy, Survey Warns

Global business confidence plunged in October to a five-year low, according to a British research firm which said the decline in optimism and expansion plans in the United States was the major concern for the global economy.

Markit reported in its latest Global Business Outlook Survey of 6,100 companies that the number of firms expecting business activity to be higher in a year’s time exceeded the number expecting a decline by some 28% — down from a “net balance” of 39% in June.

Hiring and investment plans were also at or near at their lowest levels since the financial crisis, while price expectations deteriorated further, Markit said. The firm has published the survey three times a year since October 2009.

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“Clouds are gathering over the global economic outlook, presenting the darkest picture seen since the global financial crisis,” Chris Williamson, chief economist at Markit, warned in a news release.

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

The U.S. service sector experienced a particularly dramatic decline in business confidence. Nevertheless, optimism in the U.S. is still more buoyant than in the eurozone and Japan.

“There’s also little sign of the eurozone’s malaise ending any time soon, as companies have become even less optimistic about the outlook,” Williamson said, while in Japan, companies “have become increasingly disillusioned with the potential for ‘Abenomics’ to boost growth.”

The report says that the prospect of higher interest rates in the United Kingdom and the United States next year and geopolitical risks from crises in Ukraine and the Middle East have also dented business confidence across the globe.

“Russia is the biggest concern, with sanctions, a spiraling currency and uncertainty driving business expectations down sharply to a new low,” Williamson said.

Accompanying the low expectations by businesses are weakening pricing pressures. “Companies’ expectations of input costs in the year ahead fell to a new survey low in October, the weakest being recorded in the [United States], linked to lower energy costs in particular,” Markit’s report said.

As far as selling price expectations, “especially weak price expectations were seen in the [United States], where the outlook for charges was the weakest seen in the survey’s history, and in China, where the expected increase matched the survey-low seen in mid-2012, as well as in France and Spain,” Markit said.

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