Saturday, May 30, 2009

Falling business confidence

The Economist Intelligence Unit's (EIU) assessment of global business-environment (economic and political environment, finance, and infrastructure), captured in its Business Environment Rankings (BER) model, for the next five years for 82 countries points to a worsening of the outlook for more than half the countries surveyed. The model uses quantitative data, business surveys and expert assessments to measure the attractiveness of countries’ business environments. India improved its ranking from 62nd position to 59th, while China jumps 11 places from 56th to 45th for the 2004-08 and 2009-13 periods.

The report indicates that for the first time since the BER were introduced in 1996, the average business environment score for the 82 countries covered by the model is lower for the five-year forecast period (now 2009-13) than for the historical period (2004-08), thereby reversing the long-standing trend of continually improving global business environments as a result of robust growth, liberalisation and infrastructure improvements. The report says,

"The global business landscape will be characterised by greater caution, less liquidity, lower cross-border capital flows, tighter regulation and less risk-taking. Confidence in many countries has been battered, and may take a long time to recover... the deterioration in the global business environment reflects worsening market opportunities, increased macroeconomic and political risk, and problems in financial systems... Annual average global growth in 2009-13, measured at PPP exchange rates, is forecast to be only half the rate achieved in the previous five years at 2.3% compared with 4.6% respectively... The macroeconomic environment will be affected by increased budget deficits and public debt levels (the result of weak growth and fiscal stimulus measures), expected currency volatility and ongoing appreciable risks to asset prices. Poor ratings for the soundness of banking systems, financial sector distortions and impeded access to finance, in particular, will have a significant effect on the outlook for financial systems."

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