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Moderate optimism among Asia Pacific businesses with rapid export growth expectations

According to the latest Grant Thornton International Business Report (IBR), optimism for the economic outlook over the next 12 months among Asia Pacific businesses remains moderate at 32%. However, the report also uncovered an unprecedented increase in plans to boost exports in the region, with export growth expectations reaching a record high of 27% since 2011. Expectations on profitability also rose sharply to 44% in Q2 from 25% in Q1 2014.

The boom in export growth in the region can be attributed to the rapidly-emerging middle class in Asia, which has fuelled consumption levels and created new and expanding markets for goods from the region and elsewhere. The clear focus on exports signals the importance of cross-border trade between Asia Pacific and other markets, and the immense opportunities it will bring to the wider economy. Businesses here are in for an exciting journey ahead.

Business confidence picks up in mainland China as economy stabilises
Across Greater China, optimism on revenue, profitability, product price, export and employment all rose significantly this quarter from the last, even as economic optimism remained at current levels. Meanwhile, expectations on businesses investment increased, indicating a higher willingness for business expansion. The stabilisation of the Chinese economy follows the introduction of a package of mini-stimulus measures by the Chinese government in April.

The IBR reveals that business confidence on the increase of revenue (61%) and profitability (47%) all rose sharply, up by 30 and 31 percentage points respectively. In addition, it shows that 37% of Chinese businesses expect to see a rise in product price, while 36% expect higher exports and 36% plan on hiring more, with all indicators up by at least 20 percentage points over the last quarter. Across the sectors, the manufacturing industry saw expectations on revenue and profitability increase at 48% and 39% respectively, demonstrating relatively strong confidence on further development.

In 2013, almost half of the companies listed in Hong Kong were mainland companies. Their total market value was HK$13.7 trillion, or close to 60 percent of the total value of the Hong Kong stock market1. Coupled with Hong Kong’s status as a leading offshore RMB market, the SAR has always enjoyed a close relationship with the mainland. It is inevitable that Hong Kong will benefit even more as China’s economic development, spurred on by higher business optimism and activity, regains momentum well into the second half of the year.

Optimism in India soars while Japan remains cautious
Elsewhere in Asia Pacific, Indian businesses are the most optimistic region worldwide (86%), indicating that the majority of Indian businesses hold a strong bullish attitude of their economy. Furthermore, 93% of Indian businesses expect to see revenues climbing over the next 12 months, 90% of businesses expect an increase in profitability, and 76% of businesses plan on hiring more workers. The findings suggest that India has expressed full trust and expectation in its new Prime Minister Narendra Modi and the recently-announced series of measures to boost the economy.

Japanese businesses, on the other hand, are less optimistic about the economy (down to 5% from 17%). However this marks the third straight quarter of positive optimism for the country, following aggressive monetary easing and a massive fiscal spending by the government. Despite the increase in the sales tax from 5% to 8%, 15% of businesses expect to increase profits over the next 12 months, up from 1% in Q1.

EU optimism hits a new high
The IBR also shows that optimism in the EU has continued to rise, hitting the highest since 2007 at 43%. Ireland (84%), UK (80%) and Germany (79%) occupy three of top four optimism positions, and all these three economies are expecting to see big export growth.

Expectations for increasing exports are also strong in EU at 31%, where Germany (47%) and the UK (34%) are amongst the most confident both in regards to their respective economies and their export growth potential.

The IBR suggests that this databodes well for China, where the trade surplus soared in May to HK$279 billion, from $158 billion a year ago, as exports grew 7 per cent from the same month last year due to the strengthening global economy2. Hong Kong, a leading currency trading centre for the yuan, is also expected to reap the benefits, as China announces the direct trade of its yuan currency with the British pound, a move that is expected to promote bilateral trade and investment relations between China and the European Union and support the use of both currencies in cross-border trade and investment settlement.

Tied to the growth in business optimism and intention to export is a growth in plans to increase spending on research & development. Over a fifth (21%) of EU business leaders plan on increasing R&D spending over the next year, the highest figure ever recorded.

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1. State Council Information Office, People’s Republic of China
2. General Administration of Customs, People’s Republic of China

Content provided by Grant Thornton Hong Kong Limited
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