Optimism among mid-market business leaders has reached a record high with 74% optimistic about the outlook for their economy over the next 12 months (up three points from Q2 2024), according to Grant Thornton's latest International Business Report (IBR).
This increase in confidence appears to be driven by a drop in concerns about business constraints. Although economic uncertainty remains the top concern for 52% of business leaders, this fell by three points compared to last quarter. Concern about energy costs also saw a notable decline, dropping four points to 50%. And there was a six-point drop (to 43%) in concerns over geopolitical disruptions (at the time of the survey).
Concerns over the availability and cost of raw materials dropped three points to 49%, while concerns about labour costs fell two points to 49%. Those citing the availability of skilled workers as a concern fell three points to 47%.
Interest rate cuts by the European Central Bank (ECB), the Bank of England, and the US Federal Reserve have also improved the outlook for the mid-market, leading to a sharp decrease in concerns over shortage of finance down to 41% from 45% last quarter.
With concern over the impact of many risks receding and predictions of a recession, in some markets, failing to materialise, a record number of business leaders are expecting increased profitability over the next 12 months (up one point to 67%). Mid-market businesses are also expecting higher revenues (up one point to 65%) and to increase employment (up two points to 57%).
Despite ongoing geopolitical tensions, concerns about the impact of these on the mid-market have eased. The overall increase in optimism is also clearly tied to international markets, with a record number of businesses expecting to increase revenue from non-domestic markets (up three points to 51%). Additionally, a record 50% anticipate expanding the number of countries they sell to (up one point), while 40% expect to increase the number of employees focused on non-domestic markets (up two points).
In contrast, marginally fewer businesses expect to increase exports (down one point to 52%) or raise their selling prices over the next 12 months (down one point to 54%).
With record high optimism and profitability set against the backdrop of falling interest rates, business leaders are now thinking carefully about where to deploy their capital. The number one investment choice is information technology, with a record 70% planning to increase spending (up three points). Of this, investments in AI account for the largest share, comprising 66% of the planned technology investments.
Research and development has remained at a steady high, with a record 61% of respondents expecting to increase investment (up one point).
Investment in people follows closely, with 60% of businesses planning workforce increases (up one point), reinforcing the belief that, despite the rise of generative AI, a skilled workforce remains vital. This is followed by investment in brand, which saw a slight uptick from the previous quarter, with 59% of business leaders planning increases (up two points). Meanwhile, sustainable initiatives remain at a steady high, with 58% of leaders intending to boost investment in this area.
Investment intentions in new buildings and plant and machinery saw a marginal increase to a record 53% (up one point), while investment in workplaces remains static at 52%.
Peter Bodin, CEO of Grant Thornton International Limited commented:
“Our latest IBR research reveals a remarkable rise in mid-market optimism, now surpassing pre-COVID levels and reaching the highest point since the IBR began.
Over the past five years, mid-market business leaders have been forced to meticulously examine, reengineer and optimise almost every aspect of their operations as a result of Covid and the conflicts in Ukraine and the Middle East, which impact supply chains, energy prices, inflation and finance costs.
There is a sense that mid-market leaders have developed a playbook that has hardwired resilience into their business.
Many are beginning to see the benefits flow through to the bottom line with record numbers expecting increased profitability over the next 12 months.
The skills developed over the past five years are beginning to be tested again as businesses across the world look to invest any excess capital in new technologies, particularly AI.
Business leaders know they cannot run the risk of being left behind by their competitors. But choosing the wrong technology could be very costly. Having proven their ability to respond to other challenges with agility, the race to adapt is one that many mid-market business leaders will feel able to win.”