Firms begin to regain cheer as economy heals

Ben Southwood
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BUSINESS confidence began to return in the third quarter, data from Deloitte revealed today, but firms are still very wary about the economic environment.

Sentiment improved from minus 35 last quarter to minus nine now, the statistics showed, but this still indicated pessimism among the finance chiefs surveyed.

And though fewer respondents said they expected the recession to continue or return at some time in the next two years, there were still 43 per cent expecting a prolonged downturn.

But it seems that even optimistic firms are wary in the challenging economic climate, and are responding with defensive corporate strategy, based on simplifying their product mix, reducing leverage, and disposing of assets.

“Chief financial officer optimism has made up some of the record losses we saw in the second quarter of this year, when the euro crisis intensified,” said Deloitte economist Ian Stewart.

“Spirits seem to have been lifted by the recent promise of more aggressive action from the Federal Reserve to support growth, and from the European Central Bank (ECB) to strengthen to single currency,” Stewart claimed.

The financial bosses aren’t completely convinced that ECB action will prevent Eurozone break-up – some 27 per cent expect one or more countries to leave the euro within the year – but many have changed their mind since the first quarter, when 36 per cent expected at least one country to exit.

Data from accountancy firm BDO reinforces the picture of a modest improvement in business confidence. Optimism grew from 89.1 in August to 92.5 in September, BDO says, indicating businesses are still gloomy – as the index is below 100 – but less gloomy than earlier in the year.

While the sub-indices for output and employment also improved, the labour market was a cause for concern. Hiring intentions hit a 28-month low, the data showed, with the employment index dipping from 92.7 to 90.5.