KPMG: Global recovery loses its shine as optimism begins to wane

MOSCOW, November, 30, 2010. – KPMG, the global network of professional service firms providing Audit, Tax and Advisory services, today has published the results the latest edition of Pulse – the Global Business Outlook survey. It reveals that, globally, business optimism about the future is at its lowest point for 12 months.

The nascent global economic recovery appears to have lost some of its sparkle with businesses around the world now reversing their expectations of increased activity over the coming year.

The latest Pulse survey, compiled by research firm Markit Economics on behalf of KPMG International, records a remarkably consistent swing of 6-10 points against most of the 23 key indicators, such as business activity, revenues or new orders.

The percentage of service sector respondents anticipating an increase in business activity fell from 53 percent to 47 percent while their manufacturing counterparts registered a fall of nine percent from 60 to 51. Similarly, when looking at business revenues, the percentage feeling optimistic shrank from 51 percent to 43 in services and from 57 percent to 49 in manufacturing.

As for employment – where optimism has already been more subdued – just 24 percent of service respondents and 27 percent of manufacturing respondents now express confidence in being able to increase employment levels in a year’s time.

Looking at the latest Pulse numbers, it is clear that the regional success story this time around belongs to the European services sector as it bucks the trend in shaking off some of its pessimism from previous surveys. With European manufacturers leaking optimism – particularly around new orders – the services sector appears set to take on the role as the main driver of expansion across the continent.

There is little change within the BRIC countries but the US and Japan are a cause for concern. Having reported amongst the highest optimism rates of all in the summer Pulse survey, US respondents have since suffered a dramatic loss of confidence with downward swings of as much as 20 percentage points on certain indicators - with this U-turn being linked to growing signs of a faltering recovery in the US domestic economy.

Tony Thompson, CIS Head of Advisory comments:

“Whilst the recovery will be difficult in Western economies, Russia as well as other BRIC countries, expect to grow strongly. Despite recent falls, the percentage of respondents who remain optimistic about the prospects for business in Russia is still very significant. Meantime Russian firms forecast the strongest rates of inflation overall, partly due to expectations of higher food prices following this year’s poor harvest. The BRICs are also set to see the strongest rises in employment. Profits, capacity utilization, capital expenditure and research & development spending are all forecast to increase over the coming year in Russia. ”

About the survey: Pulse - the Global Business Outlook Survey for worldwide manufacturing and services - is produced by Markit Economics on behalf of KPMG and is based on a survey of around 11,000 manufacturers and service providers that are asked to give their thoughts on future business conditions. The reports are produced on a tri-annual basis, with data collected in February, June and October.

The countries covered by the survey are the US, Japan, Germany, the UK, France, Italy, Spain, Ireland, Austria*, the Netherlands*, Greece*, the Czech Republic*, Poland*, Brazil, Russia, India and China. (*Manufacturing only)

Interest in the use of economic surveys for predicting turning points in economic cycles is ever increasing and KPMG’s Pulse survey uses an identical methodology across all nations covered. It gives a unique perspective on future business conditions from Global manufacturers and service providers.

The methodology of KPMG’s Pulse survey is identical in all countries that Markit Economics operates. This methodology seeks to ensure harmonisation of data, and is designed to allow direct comparisons of business expectations across different countries. This provides a significant advantage for economic surveillance around the globe and for monitoring the evolution of the manufacturing and services economies by governments and the wider business community.

Data collection is undertaken via the completion of questionnaires three times a year at four-month intervals. A combination of phone, fax, website and email are used, with respondents allowed to select which mechanism they prefer to use.

KPMG’s Pulse survey uses net balances to indicate the degree of future optimism or pessimism for each of the survey variables. These net balances vary between -100 and 100, with a value of 0.0 signalling a neutral outlook for the coming twelve months. Values above 0.0 indicate optimism amongst companies regarding the outlook for the coming twelve months while values below 0.0 indicate pessimism. The net balance figure is calculated by deducting the percentage number of survey respondents expecting a deterioration/decrease in a variable over the next twelve months from the percentage number of survey respondents expecting an improvement/increase.

Questionnaires are sent to a representative panel of around 11,000 manufacturing and services companies spread across the global economy in the countries mentioned above. Companies are carefully selected to ensure that the survey panel accurately reflects the true structure of each economy in terms of sectoral contribution to GDP, regional distribution and company size. This panel forms the basis for the Pulse survey. The current report is based on responses from around 6,200 firms.

Should you have any questions, please do not hesitate to contact Irina Pashinkina, Head of PR, KPMG in Russia and the CIS Tel.: +7 (495) 937 44 77 (ext 15355), Mob.: +7 (916) 396 25 33

Photo: Alexey Stiop -