Optimism among APAC members rises on back of strong regional growth

03 January 2018 Authored by Consultancy.asia

Business optimism among Asia-Pacific nations is on the rise, with a growing middle class, continued demand for goods, and a relatively stable business environment. However, geopolitical concerns remain, with an ageing population creating additional uncertainties.

The Asia-pacific region continues to see improvement in business optimism, finds a Grant Thornton report drawn from 686 interviews from across the region. The APAC region has some of the world’s fastest growing economies, with average member growth for 2017 estimated at 5.6%, well above the 3.6% projected worldwide. Next year, the region is again projected to see solid growth, at 5.5%, also well above the global average.

The solid regional growth is reflected in the wider confidence of businesses across the region. The analysis shows that Asia-Pacific situated businesses saw continued net/balance of optimism topping almost 40% in Q3 2017, up from almost 30% in Q2 2016. Mainland China confidence has risen in the past quarters too, now at slightly more than a net 50%.

Net optimism

ASEAN member respondents were found to be even more optimistic, with net confidence above 50% in the latest survey, although down slightly on Q1 2017. Since Q4 2015, ASEAN economy net confidence is up nearly 30%.

In terms of key areas considered by the report, high net optimism in China is reflected in increased revenue expectations from respondents (44%) and increased exports (21%). However, the research notes that around 10% of respondents plan to increase investment in plant machinery in the coming 12 months, while R&D spending expectations have fallen from 42% in Q2 2017 to 30% in Q3.

In Japan meanwhile, confidence has improved to a net -14%. Since last year, net confidence is up by 23 percentage points, in part a reflection of the more stable business environment. Companies in the country are also over the coming year expecting improved profitability (19%), and plan to invest in plants and machinery (40%) and new buildings (36%). The biggest concern in the country is a lack of skilled workers, cited by 87% of respondents.

In India meanwhile, net confidence hit 78%, with a small drop in net optimism – however, strong growth in the middle class as well as wider growth figures continue to buoy the country.

Regional APAC optimism

Together, the regions are relatively positive about the growth of the middle class – around 30% cite this as an opportunity – with recent estimates predicting that around 66% of the global middle class will be situated in Asia by 2030, representing around 59% of demand.

South East Asia and the Pacific however experienced a mixed bag result, with Thailand, Indonesia and the Philippines each recording high levels of net confidence – in Indonesia reaching 100%. Malaysian and Singaporean respondents were the most pessimistic, with net 4% and 6% optimism respectively.

New Zealand and Australia, with their advanced economies, are relatively well-positioned according to the report, with optimism running at a net positive 68% and 58% – although both saw drops, partly due to the impact of commodity prices on their respective economies.

Regional optimism

According to the consulting firm's study, the top challenges faced by APAC region companies include regional conflicts regarding competing territorial claims, cited by 33% of respondents, an ageing population, also cited by 33%, and the rebalancing of China’s economy, cited by 32%. As it stands, ageing will hit Japan the hardest in the near-term, although it is an issue more broadly in the region. Meanwhile, regional geopolitical uncertainty continues to play out in North Korea, among other concerns.

Job losses due to automation are also on the radar, while climate change and extreme weather events round out the top five of concerns. Capital outflows from rates rises have created issues in the past, cited by 16%, while lower commodity prices and local employment focuses internationally come in at 15% and 10% of respondents respectively.

Top challenges for APAC

Commenting on the survey and its reported rise in APAC optimism, Rodger Flynn CEO, Grant Thornton Singapore, said, “The outlook isn’t wholly positive, however. As was the case in our last snapshot of Asia Pacific 12 months ago, businesses cite ageing populations as the biggest threat to the region over the next five years. Potential consequences of this trend include a shortage of labour supply and an impact on government investment, as more resources are directed towards services like healthcare and away from programmes which could benefit businesses more directly. Elsewhere, concerns about territorial disputes still worry Asia Pacific business leaders.”

The Grant Thornton findings are backed by a recent report from Big Four professional services firm PwC, which noted recovering sentiment  and rising confidence among CEO’s within APEC.

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