The latest S&P global economic outlook is released.
1. The S&P Global Business Outlook survey indicates that global business confidence will recover in early 2023 as companies in various economies have raised their expectations for the next year. Higher activity will lead to further employment growth, but wage pressures show little sign of abating, potentially preventing any meaningful slowdown in sales price inflation. Rising cost pressures also mean that any recovery in investment will be inhibited.
2. The improvement in market confidence was mainly driven by those economies that experienced the largest decline in confidence at the end of 2022, as demand conditions later proved more resilient than expected. Output in the United States, the eurozone, and the United Kingdom is expected to hit new highs in a year. At the same time, with the easing of epidemic restrictions, Chinese Mainland's confidence in business activities has risen to the highest level in ten years!
3. Only Japan, Brazil, and India have seen their business confidence decline compared to the previous outlook survey.
4. Wage inflation expectations remain unchanged
-One of the less positive aspects of the February outlook survey is that inflationary pressures are expected to remain high in the coming year. This is particularly true in terms of employee costs, with the expected cost increase only slightly lower than the record published a year ago.
-When it comes to non employee costs, February was the lowest level since mid-2021, but the inflation expectations for this indicator are still higher than at any time before October 2021. "Non employee costs are expected to decline significantly in Europe, especially in the euro zone and the United States, but Japan and all four of the largest emerging markets except Russia have all undergone upward adjustments.".
-A further significant increase in input costs will lead to an increase in sales prices in the coming year, and an enhanced demand situation will help improve the pricing ability of enterprises. The net difference in output prices in February was slightly lower than last October, but still higher than any level before the current high inflation. Inflation expectations in the manufacturing sector have softened slightly more than in the service sector, with inflation expectations particularly high in the UK.
-Driven by the United States, Chinese Mainland and the United Kingdom, the global profit forecast for February also rebounded. However, profit sentiment in the eurozone remains slightly negative.
5. The increase in recruitment and investment plans coincided with business activity, with the global net employment balance improving to its highest level in a year in February, rising to+17% from+9% in October. Although employment expectations in the manufacturing and service industries have improved, confidence in the latter is stronger. Due to the inflationary environment leading to continued caution among companies, the upward adjustment in business investment forecasts is small. The net balance of capital expenditure (+12%) and research and development expenditure (+7%) is consistent with their respective averages. Investment expectations in emerging markets are generally higher than in developed economies. Compared to service industry peers, manufacturers are more likely to forecast growth in R&D and capital expenditure, with expectations for both areas rising from October's lows, adding to a brighter business outlook.
6. In the latest survey, one concern among policymakers is that companies are not seeing a rapid slowdown in inflationary pressures. The expectations for input costs and sales prices remain at the levels before the current surge in inflation. "In particular, due to the tight labor market, workers can negotiate to raise wages, so wage expectations have not changed from the previous survey." Help them cope with cost of living pressures. "The data flow in the coming months will be the key to assessing the current optimism of companies as interest rates continue to rise."
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