Source: Markit Economics

The latest KPMG Global Business Outlook Survey shows that optimism at companies around the world has held steady since the last survey in February. Both manufacturers and service providers remain confident of rising activity during the next twelve months, supporting growth of revenues and profits. Positive sentiment regarding employment has increased, but inflation expectations have also risen modestly. Irish service sector companies expect revenues, new business and job creation will all improve over the next 12 months. KPMG says sentiment on  business activity in the service sector is well ahead of the EU and global average, according to a survey produced by research firm Markit Economics.

KPMG Ireland's David Kennedy commented: "Improving service sector optimism is founded on the improving global outlook and increased confidence that the Irish economy and Irish businesses have responded well to the challenges brought about by the downturn. That output prices are expected to continue falling reflects an across-the-board commitment to maintaining and improving Ireland’s competitiveness. Reduced competitiveness was at the core of many of Ireland’s problems over the past 24 months and this is increasingly being accepted across both the private and public sectors. The recent agreement by the public sector unions to a wide-ranging pay and transformation programme underscores this commitment. Alongside equivalent measures in the private sector, this is seen as an important catalyst for a return to sustainable growth."

Growth expectations remain intact: Companies across the globe continue to hold a positive outlook for business activity during the next twelve months. In the manufacturing sector, a net balance of +49.9 firms anticipate a rise in activity, compared with +50.9 in the last survey conducted in February. The equivalent figure for the service sector is +43.9, little-changed from the previous reading of +44.0.

Of the major economic regions, confidence remains highest in the US, where sentiment has improved slightly since February. BRIC companies continue to signal an upbeat outlook, but their optimism has slipped back since February. EU firms again indicate solid growth prospects, while Japanese panellists’ confidence has strengthened compared with the previous survey but remains below the global average.

Anecdotal evidence suggests that optimism regarding future activity is linked to signs of continued recovery in the worldwide economy. Additionally, business opportunities are set to arise from product innovation, the development of new markets and, in some cases, the weakening of competitors during the global downturn.

All industry sectors are set to record higher activity during the coming year. In manufacturing, the strongest rates of growth are anticipated in Electrical & Optical, Mechanical Engineering and ‘Other Manufacturing’, while the slowest rise is forecast in the Transport category. In services, confidence is highest in the Renting & Business Activities and Financial Intermediation sectors, while optimism is lowest amongst Hotels & Restaurants.

US firms signal marked optimism: As was the case in February, companies in the US report a substantial degree of confidence regarding future activity. For manufacturing, June’s net balance of +69.3 is the second-highest of all surveyed countries, while the figure for services is +61.2, topping the global ranking. US companies generally attribute their optimism to expectations of continued economic recovery during the next twelve months.

BRIC growth expectations ease amid China slowdown: Although still forecasting a brisk pace of expansion, companies in the BRIC region have become less optimistic than in recent outlook surveys. June’s net balance for manufacturing is +45.7, the lowest since January 2009, while the services reading of +46.8 is the weakest of the past three outlook periods. In both cases, the drop is in large part driven by an easing of optimism in China, where policy tightening to cool the economy has led to a dampening of near-term growth prospects. Chinese firms are now the least upbeat in the BRIC area.

Brazilian panellists continue to signal buoyant expectations for growth. June’s net balance of +77.1 for manufacturing is the highest of all countries covered by the survey, while the services figure of +50.2 is the third-highest in the world.

Confidence has grown in India, where positive sentiment is higher than at any time since mid-2008. In Russia, manufacturing confidence has eased slightly but remains strong, while optimism in the service sector is the second-highest across the globe.

Alan Buckle, Global Head of Advisory, KPMG said: "This all adds up to a growing feeling of a quality upturn; the sort of upturn which was hinted at in the previous Outlook survey but which needed further evidence of sustained confidence, increased investment and improved employment prospects before it felt convincing.

"While not providing us with any dramatic swings in the headline confidence numbers, the latest survey nevertheless provides some comfort that recent reports of weakening activity should prove temporary. Almost inevitably though, some doubts remain. While confidence in the West is strong in manufacturing - - helped by global demand and, in some cases, falling currency - confidence in the service sectors is weakening and this is a significant drag on countries such as Spain and the UK which have a small manufacturing base."

The Global Business Outlook Survey for worldwide Manufacturing and Services is produced by Markit 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.