Graphic by Satish Kumar/Mint
Graphic by Satish Kumar/Mint

Global business optimism at a decade low, with recovery nowhere in sight

  • The prolonged US-China trade conflict remains the root cause of faltering global growth
  • Global equities have rallied in recent sessions anticipating some resolution

With economic gloom spreading from manufacturing to the services sector, global business confidence has waned further. Business optimism for future output, employment and profits hit a decade-low, according to IHS Markit Global Business Outlook Survey for October.

The survey, which is conducted thrice a year, showed that the percentage of global firms expecting an improvement in output over the coming year had declined in October. “Optimism peaked in early-2018 and has since fallen steadily to reach its lowest since data was first collected in 2009," added the report.

Developed world companies reported the bleakest outlook for growth since 2009. While sentiment was higher in emerging markets, it remained close to post-global financial crisis lows, showed the survey.

The prolonged US-China trade conflict remains the root cause of faltering global growth. Global investors are awaiting clarity on the trade deal as US President Donald Trump and Federal Reserve chairman Jerome Powell speak at separate events in the US this week.

Global equities have rallied in recent sessions anticipating some resolution. But considering the past false starts, economists aren’t too hopeful of a truce.

Mark Cliffe, head of global markets research at ING Group, said that markets rallied on signals of trade war de-escalation, but risks remain tilted to the downside. “Whether it’s US-China trade or Brexit, the political news flow has taken a tentative turn for the better over recent weeks. But it may be too soon to sound the all-clear, and political risks could easily flare-up again as we move into 2020. That means the slowdown in the global economy probably has further to run," he said in a report last week.

It should be noted that if no deal is reached even this time, new tariffs on consumer goods from China would go into effect from 15 December. So, in that context the forthcoming negations are among the key triggers for global markets and economy.

“Both the US and China have said that if a ‘phase one’ trade agreement happens, it would include some reduction in tariffs. The length of US-China negotiations does hint at a more substantive deal. Economically, trust in the world trade order has been damaged. Even with a deal the economy is unlikely to go back to where we were. You cannot turn burnt toast back into bread. This toast has been quite badly burned," UBS Group AG economist Paul Donovan said in his blog on 8 November.

Meanwhile, India was no exception to this trend as muted domestic demand continued to take its toll on business confidence. India’s business activity net balance, at 14% in the October survey this year, is at its lowest since October 2009. Net balance is the percentage of companies expecting improvement in future output minus the percentage anticipating a decline.

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