Grant Thornton IBR: Asia Pacific businesses split on economic outlook in Q1 2018

·      Business optimism across Asia Pacific down to net52% in Q1 2018

·      China and Japan optimism down 13pp and 11pprespectively in Q1

·      But ASEAN business optimism up 3pp

·      Global optimism reaches net 61% in Q1 – highest in15 years of research

Business optimism across AsiaPacific is down from its recent peak in the first part of 2018, according toglobal research from Grant Thornton’s International Business Report (IBR).However, the findings also reveal a split in outlook. Optimism is down in theestablished economies of China and Japan, while it is up in the emerging ASEANregion. At a global level, business optimism stands at an all-time high duringthe first quarter of this year.

The IBR finds a dip in businessoptimism across Asia Pacific in Q1 2018, down 6pp to net 52%. This bucks thewider global trend, with Asia Pacific and Latin America the only major regionsto see optimism drop over this period. However, a notable split emerges in theway the emerging and developed APAC economies have started the year.

In China, business optimism isdown from an all-time high of net 78% in Q4 to 65% in Q1. In Japan, businessesreached positive territory for optimism in Q4 (net 3%) but it has slipped backto net -8%. However, across the ASEAN group of countries, economic optimism isup to net 61% in Q1. This is the joint highest quarterly figure ever recorded.Substantial increases in optimism come in Malaysia (up 22pp in Q1), Singapore(up 12pp) and Thailand (up 6pp).

Globally, business optimism is atnet 61% in Q1 - the highest figure recorded in 15 years of research.

The drop in optimism across AsiaPacific contrasts with most other global regions. It is striking that the majorcontributors to this dip are China and Japan. That said, their confidencelevels still compare favourably with those in recent years.

In Japan, a strengthening yenwill have dampened the mood somewhat. In China, the continued rebalancing ofits economy, along with tough trade rhetoric with the US, are likelycontributing factors. ASEAN businesses, on the other hand, are buoyant. Thecontinued transfer of low-cost manufacturing sectors from China to neighbouringcountries is driving business confidence.

A talking point for the wholeregion, though, is the rhetoric around import taxes with the US ratcheting up.It will be telling to see how businesses respond over the next quarter. Mosttake the view that the risk of a fully blown ‘trade war’ has eased, butuncertainty is never welcome. Most business leaders will want to see claritysooner rather than later.

The IBR reveals that theproportion of Chinese businesses who expect exports to increase over the nextyear his down to net 25% in Q1, from net 33% in Q4. In Japan the figure is downto net 9% from net 12%. As a result, the Asia Pacific region slips 2pp to net20%.

At the same time, there is a fallin expectations for increased profitability (down 7pp to net 40%) across AsiaPacific in Q1. Meanwhile, businesses report increased concerns that economicuncertainty will act as a constraint on growth (up 4pp to 42%).

The dip in optimism in China andJapan hardly represents confidence in freefall. However, how the regionresponds will be telling. ASEAN businesses are currently optimistic, but ifthey see the war of words on trade develop between China and the US, thatconfidence could start to evaporate.

Aside from the tradetalks, the global economy is firing more strongly than it has in many years.Economic predictions are positive for the short to medium term, but historytells us that growth tends to come in cycles. For businesses across Asia, nowrepresents a window of opportunity to invest in their future.