Global business outlook plummets to five year low, says Markit Economics

Global business outlook has fallen to a five-year low, according to October’s Markit Global Business Outlook Survey. Optimism among 6,100 companies in the world’s largest economies fell steeply.

The report informed that hiring and investment plans were at near-crisis lows, while price expectations worsened further.

The number of businesses in October expecting activity to be greater in 12-months’ time was 28% percent higher than those forecasting a decline, compared to 39% more predicting growth in the summer.

While pessimism reached its highest level since mid-2013 in manufacturing, in services optimism was at its lowest point in five years, or ever since the survey began.

Of all the companies surveyed among the major economies, those in the UK were the most upbeat about the next 12 months. Even in the UK, however, expectations about future activity levels fell to their lowest level in October since June 2013, in both the services and manufacturing sectors.

The authors were surprised at the extent of the downturn in the United States, where optimism in October hit a new survey low, especially in the service sector.

Markit Global Business Outlook October 2014

Source: Markit Global Business Outlook October 2014.

Optimism was even lower in Japan and the Eurozone. In Japan optimism was at a two-year low in October, and at a 16-month low in the Eurozone.

Even in Spain and Italy, which had relatively buoyant levels of business confidence compared to the rest of the Eurozone, they were at their lowest levels since October 2013 and January 2014 respectively.

Confidence in Germany and France were extremely low.

Most of the emerging markets had the most pessimistic business expectations in the survey’s five-year history, with Russian confidence especially low. In China, after a near-record low in the summer, business expectations picked up marginally in October, but were much more subdued compared to previous years.

In India, optimism remained unchanged in October, but was lower than in previous years.

Hiring intentions

Global hiring intentions fell to a near-record low, and deteriorated in the US, UK, Eurozone, Russia, Brazil, and Japan.

Surprisingly, hiring intentions in the US fell to a new survey low.

British companies were comparatively the most upbeat regarding employment plans among the major countries, while French businesses were the most pessimistic. France was the only country surveyed predicting a net drop in employment for the next twelve months.

What are companies worried about?

Companies say they are concerned about political uncertainty in the UK, Japan and US, higher interest rates in the US and UK next year, and geopolitical risks associated with the crises in Ukraine and the Middle East.

They are also worried about the deteriorating global economic climate, and notably a renewed downturn in the Eurozone.

Chris Williamson, Chief Economist at Markit, said:

“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 level seen over the past five years. US growth therefore looks likely to have peaked over the summer months, with a slowing trend signaled for coming months.”

A separate Markit report informed that the UK’s business outlook has deteriorated but remains better than elsewhere, while the Ifo Institute reported that German business sentiment has improved.

Even the US, which many thought was immune to the current global headwinds, saw its business outlook decline to a five-year low.