Business optimism in Asia Pacific has hit a two-year high

Grant Thornton’s new Asia Pacific report - Asia Pacific: trading and thriving reflects a buoyant mood across much of the region, as business optimism hits a two-year high. This is largely driven by improvements from its two biggest economies, China and Japan, and region-wide positivity on prospects for increased trade. However, not all trajectories are heading upwards. India’s optimism mostly remains positive at 75 per cent but has dropped to its lowest level in four years.

Australia and New Zealand have also seen a similar slump, as optimism in Australia dropped from 75 per cent a year ago to 58 per cent and New Zealand is down to 68 per cent which is the lowest in two years.

“In the last 12 months, businesses in India have had to deal with the impact of radical reforms such as demonetisation, country-wide consolidated indirect tax and a new bankruptcy regime. However, with the largest gain of any country in the ‘World Bank ease of doing business ranking’ and favourable macro-economic conditions, India remains one of the few bright spots in the global economy,” said Vishesh C Chandiok, National Managing Partner, Grant Thornton India LLP. 

While highlighting about the opportunities for APAC, the report states that the biggest opportunity for APAC is trade and amid broad based positivity, there are signs that enhanced cooperation between ASEAN nations is providing a particular boost for the region. The second biggest opportunity over the next five years cited by Asia Pacific businesses is the rapid growth of the middle classes.

India has one of the fastest growing middle classes in the world. Grant Thornton’s International Business Report (IBR) survey data shows that India’s businesses are the most positive in the region (58 per cent) regarding the opportunity presented by the increasing spending power of the rising middle class.

Trade offers hope to APAC firms

Across Asia Pacific, 46 per cent of businesses agree that the One Belt One Road initiative, a USD 5 trillion infrastructure programme that runs across Asia, the Middle East, Europe, and Africa, will provide significant growth opportunities.

Overall, 50 per cent of businesses across the region are confident that regional and geopolitical events will create a business environment that will allow free trade to prosper over the next five years. One in three remain neutral and only 6 per cent do not believe this will be the case.

Ageing populations remains a threat

The biggest threat to the region cited by businesses is the trend of ageing populations, down 3pp from last year at 33 per cent, but topping the list for the second year running.

The second biggest threat reported is regional conflict regarding competing territorial claims (33 per cent); evidence that the threat of disputes escalating is weighing on leaders’ minds as uncertainty over how the disputes will be settled affects the ability to plan effectively. The third biggest threat in the research is the rebalancing of China’s economy (32 per cent), which is particularly acute in Japan (56 per cent) and New Zealand (46 per cent).

Rodger Flynn, Grant Thornton regional head for Asia Pacific said:

“Businesses across the region are grappling with a range of economic, cultural and political challenges, despite their overall positive outlook. If left unaddressed, these challenges could overshadow the growth prospects the report has identified.

“To overcome those challenges most effectively, we make a set of recommendations to businesses. When it comes to ageing populations, there is no quick fix but businesses should consider looking for new pools of potential labour – including people looking for career changes later in their working life.

“Likewise, to make the most of trade opportunities, businesses need to ensure contingency planningin their forecasts to account for the global patchwork of trade agreements operating on global, continental and regional levels. These agreements offer significant growth opportunities but equally, business leaders should be wary of overreliance on trade initiatives to boost growth prospects.”

To download a copy of our new report, Asia Pacific: trading and thriving, click here.