Unhappy chappys: Business optimism in Singapore falls by 6%

Cheer up, they are even more pessimistic in Malaysia, but can you blame them?

According to a research by Grant Thornton, Malaysia showed a 32% drop in business optimism.

Collectively, optimism in the Asia Pacific region (excluding Japan) fell 11% over the last quarter. Singapore business owners’ optimism showed a 6 percentage point dip in the second quarter(from 70% in Q1). Elsewhere in the region saw double digit decline in optimism level. The region’s emerging economies Vietnam and mainland China saw optimism fell by 22% and 15% respectively, according to a release by Grant Thornton.

Previously recovering levels of business optimism hit a wall in the second quarter of 2011, with sentiment dipping in the wake of natural disasters, political unrest and economic volatility according to the latest research from Grant Thornton’s International Business Report. With the impact of the sovereign debt issues in the eurozone still to be felt, the outlook for global business remains uncertain.

The research reveals that across many regions there has been a dramatic quarter on quarter decline in levels of business optimism. Although levels of optimism remain higher now than a year ago, the revival in optimism has stuttered badly in the second quarter of 2011. With business owners becoming significantly less confident about the outlook for their countries' economies such as Latin America seeing the deepest dip of optimism level (15%) and the BRIC (13%) economies, the report’s findings raise concerns about the strength of the global economic recovery.

Aw Eng Hai, advisory services partner of Foo Kon Tan Grant Thornton LLP said, “The past three months have been challenging and business optimism has been hit hard globally. Businesses are feeling the effects of the prolonged unrest in the Middle East and the subsequent volatility in oil and commodity prices. The natural and nuclear disasters in Japan caused huge disruption to supply chains. Concerns about rising energy costs and inflation weigh on business optimism. The research tells us that more than a quarter (38%) of Singapore businesses expect to increase prices.”

The dip in business sentiment trend is most acute in Latin America, where optimism fell 15% over the last quarter. Argentina, Brazil and Chile, key economies in the region, saw optimism fall by 30%, 24% and 10% respectively in the second quarter of the year. The BRIC group of economies fell collectively by 13%. Globally, business optimism has fallen by 3% from the previous quarter although it is 4% higher over the year.

Ed Nusbaum, CEO of Grant Thornton International, said “Fears about rising inflation across Latin America will weigh on business optimism. Inflation is currently running at more than 6% in Brazil and almost 10% in Argentina. The worry amongst businesses there is that inflation will continue to rise and that their economies will overheat. Over half the businesses in the region (54%) expect to increase prices, and with tight labour markets also making it difficult for those businesses to keep wages down, such fears look warranted.

“Eyes are now fixed on the horizon to determine if this is a bump in the road for optimism or the beginnings of a trend. With fears over the future of the eurozone I think we’ll see business optimism wane across Europe, at a time when confidence was beginning to return there (+5% in the last quarter).

“Clearly governments, and international organisations such as the IMF, must demonstrate that they are able to steer the economy and make credible decisions. If businesses are left unconvinced that their leaders can deal with these issues, what is currently a stutter has the potential to become an economic stall.”