The 2016 International Business Indicator moved up Monday to 65 from 63 this time last year, according to the Wells Fargo report. Some 64% of 262 executives surveyed predict their company’s global business to either “increase a little” or “increase a lot” by this time next year, while 54% said it will become more important to their company’s financial success.
“The importance of international business to companies’ financial success may reflect, at least in part, diminished expectations about growth prospects in the United States,” said Jay Bryson, global economist with Wells Fargo. Indeed, the percentage of survey respondents who said they expected U.S. business conditions to be “much better” or “somewhat better” over the next year dropped from 64% in 2015 to 48%.
About 60% of respondents said volatility in commodity prices is affecting companies’ international business, with 61% saying low energy prices are benefitting them. Meanwhile, 66% said low interest rates in the U.S. have been beneficial, while 43% expect higher rates would affect overseas business.
A majority of respondents believe foreign political developments (59%) and foreign economic conditions (51%) may have negative effects on their companies’ global plans this year, Wells Fargo said. Also, slightly more than half noted “currency fluctuations or exchange rates” could negatively impact their businesses, up from 39% in 2015. “The significant attention to exchange rates could reflect the sharp appreciation in the value of the U.S. dollar that has occurred over the past year,” Wells Fargo analysts said.
China Slips, Emerging Markets Remain In Spotlight
The survey also reported that 33% of respondents ranked Western Europe as the “most important international market today,” giving it the No. 1 slot and dropping China to second place with 23%. Last year, China was No. 1 on this list. “China’s slippage may reflect the slowdown that has been occurring in that country in recent years,” Bryson said. “Real GDP in China grew at its slowest annual growth rate in 25 years in 2015.”
Still, business executives rank developing economies as “hot spots” over the next two to three years, with nearly 70% of survey respondents agreeing that emerging markets represent the greatest revenue growth opportunity. Countries like China, Mexico and India, with their expanding middle classes, were particularly attractive to survey respondents.
“Although developing economies are not likely to return to the supercharged growth rates that characterized the middle years of the last decade, these countries will probably continue to outpace their advanced economy counterparts in coming years in terms of economic growth,” Wells Fargo economists said.
- Nicholas Stern, NACM editorial associate