Ed Nusbaum considers the global economic outlook for 2015
Cautiously optimistic: that is how I would describe the mood of business leaders heading into 2015. Our most recent quarterly confidence barometer (see The global economy in 2015) found business leaders as positive as they have been since 2007. That’s not a surprise because, in many ways, 2014 was the year in which the recovery really took hold – and not just in the UK and US, but in some of the European economies hit hardest by the sovereign debt crisis. (Ireland, Spain and even Greece showed nascent signs of recovery.)
However, the recent economic, political and social turmoil is weighing heavily on business leaders’ minds. Our research showed global business optimism dropping eight percentage points to net 35% in Q4. This is hardly disastrous – this time last year, global business optimism stood at just net 27%, for example – but it does reflect well-founded concerns about the unevenness of the global recovery.
The dramatic 50% fall in the oil price has caught the headlines, rocking markets and unnerving investors. While motorists and some manufacturers will be celebrating, it is clearly less good news for oil companies and major exporters whose government budgets may have forecast a much higher price. The viability of shale oil production in the US and global investment in renewables has also been thrown into doubt.
Perhaps the bigger issue is the eurozone with Greece once again at the centre of the storm. Greeks this week voted in the left-wing Syriza party which has pledged to renegotiate the terms of the €240bn bailout and reverse many of the austerity cuts. With Germany set to block any such moves, fears of a 'Grexit', with potentially damaging knock-on effects for the rest of the region, are once again very real. If this were not enough, Italy is back in recession, France is treading water, Germany has slowed and deflation threatens to choke off consumer spending and business investment. The region is in real danger of suffering a 'lost decade' of the kind Japan – itself back in recession after a poorly timed rise in the consumption tax – suffered in the 1990s. Taken together, this could then drag down the (currently) high-flying UK.
Add to this the continuing unrest in Ukraine, with sanctions directed at Russia sending the rouble tumbling and causing growth forecasts to be slashed; violent conflict in the Middle East turning the Arab Spring into a winter of discontent; and Latin America being stuck in the doldrums following the end of the commodity supercycle; and the outlook for 2015 certainly appears tricky, to say the least.
Despite this, confidence remains fairly buoyant and I too am optimistic that businesses, especially those dynamic enough to adapt to a rapidly changing environment, can still prosper. The strength of the US economy is one reason. Its share of global output may have fallen over the past decade from 32% to 22%, but the strength of US consumer spending remains vital to the health of the world economy. Recent indicators look very promising: the addition of 2.7 million jobs in 2014 through November 2014 was the best since 1999 and growth in 2015 is forecast at a very healthy 3.3%.
China is another reason. There has been much talk of the growth rate slowing to 7.3% but this is expansion that would delight most governments and isn’t far below the official target. Yes, levels of local government debt are a concern, but the managed transition away from investment towards consumption offers a more sustainable long-term growth path. Elsewhere, those other Asian giants, India and Indonesia, have both elected prime ministers who promise to be more business-friendly and unlock the potential of their millions of young people. Finally, there are welcome signs the growth in Africa is starting to decouple from the commodity cycle with output drivers diversifying and more broad-based growth to follow.
Clearly the global economy is not moving in lockstep and this is certainly a more uneven recovery than we have seen from previous financial crises. But there are growth opportunities out there for business leaders who are willing to take a risk: to make that acquisition, to launch that new product or to enter that new market. And the issue is not that business leaders are presented with a paucity of information, but rather how they cut through the white noise. If you're going abroad, find a local adviser with deep knowledge of the market - what looks on paper like an opportunity could easily end up giving you a headache and vice-versa. If you're looking to grow through acquisition, be sure (as you can ever be) that this technology or market access you are buying offers growth opportunities beyond the here and now.
I've just returned from India visiting our clients working in sectors form automotive to telecommunications where I have once again been struck by the ingenuity, resourcefulness and dynamism of local entrepreneurs. Some commentators may be disappointed by the slow pace of reforms but changing mindsets in the world's largest democracy was never going to be an overnight job. And Indian business leaders seem unconcerned: confidence for 2015 is running at 98%, the highest anywhere in the world.
I think there is a lesson here for all business leaders. Yes, this recovery is different; it is uneven and patchy. And yes, making bold decisions is tough in an uncertain world. But sometimes we need to take the plunge, to rely on our instinct and experience to know what the best course of action is, and remain hopeful of a good outcome. A positive attitude can help overcome even the steepest hurdles.
