| Confidence up but has bottom of economic cycle been reached?
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| | The mood of those
leading British
businesses has lifted
from the rock bottom
reached this spring. In
fact levels of
confidence among senior
executives about their
businesses’ prospects
are the highest since
spring 2008, despite an
increase in the number
facing financial
difficulty, according to
KPMG’s latest National
Business Confidence
Survey.
Opinion Leader
Research, which carried
out the survey for KPMG,
found that the
proportion of senior
executives who think
their business prospects
are good has almost
doubled to 42% from 22%
in the first quarter.
And only 25% of
executives currently
believe their own
prospects are poor, down
from 37% in the spring,
with one third
‘indifferent’.
But business
executives are far
gloomier about the wider
economy. Just over half
(54%) consider the UK
economic outlook to be
bad, while less than one
in 10 (9%) are bullish
about economic
prospects. While
negative, these findings
are a significant
improvement on the
spring when 81% said the
economic outlook was bad
and a miniscule 3% felt
there was cause for
optimism.
Improved sentiment
overall may be linked to
the fact that a slim
majority (55%) of
executives now believe
the economy is at the
bottom of the cycle. It
is then no surprise that
three times as many
expect the recession to
last less than a year –
49% compared to 14% in
the first quarter.
Malcolm Edge, head of
markets for KPMG in the
UK, commented: “While
it’s encouraging that
there has been an
increase in confidence, | |
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| | this is only an
improvement compared to
the spring which
revealed the lowest
levels of optimism since
our survey began in
2004.
“Opinion is divided
over whether the economy
has dipped to its lowest
point or whether worse
is yet to come, with 55%
believing the bottom of
the cycle has been
reached and 42% fearing
we remain on the
downward curve.
“I think we are
somewhere close to the
bottom and that we may
need to get used to this
uncomfortable position.
The jury is still out as
to the likely shape of
the recession and an L
shaped one – with a long
period of relative
stability but nothing
constituting a recovery
– cannot be ruled out.
“The issues affecting
the economy over the
last year or so; weak
demand, spare capacity,
margin pressures and
funding issues won’t
magically disappear.”
The rise in
confidence is certainly
not due to an
improvement in the
conditions businesses
are facing. In fact one
in three now admit to
experiencing financial
difficulties, the number
facing higher financing
costs has grown to 51%
(versus 41% last
quarter), and more
businesses are also
experiencing tighter
borrowing – 53% against
51% in the spring.
Edge added: “Given
the increase in concerns
relating to financing,
it is perhaps no
surprise that our survey
found nearly one in four
businesses have seen
their banking
relationship worsen.
This should send a shot
across the bows for
business management
teams that may be
forecasting funding
issues. Talking to their
bankers and advisers
early undoubtedly offers | |
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| | the best way to maintain
a good working
relationship with their
funder, as well as
keeping the maximum
options open for getting
the business back on
track with facilities
intact.
“Identifying and
addressing their key
risks is likely to be at
the heart of funding
considerations. We are
long past the point of
hoping ‘business as
usual’ will save the
day. Instead any
companies that have not
yet done so should
undertake a robust
review of their weak
points – whether
management, financial or
operational. The banks
are scrutinising their
clients in this way so
it’s only sensible for
management teams to
similarly assess their
company and take action
to avoid unexpected
banking issues.
“The vast majority of
businesses now have a
strategy to reduce
business overheads. Four
in five companies are
exploring measures
including improving
efficiency, reducing
third party spend,
cutting headcount,
freezing recruitment and
reducing their
inventory. Taking firm
action to minimise costs
and improve efficiency
is essential given the
economy may be operating
at a subdued level for
some considerable time.”
Edge concluded: “It’s
quite peculiar that in
tandem with a worsening
in the financial
problems businesses are
grappling with, their
confidence levels have
risen. It perhaps
demonstrates that even
as their agendas are
being hit by new
challenges, they are
taking heart from the
relative stability in
the economy over the
last few months – a
period without dramatic
and negative
announcements.” | |
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