Emerging Markets Confidence Climbs While Developed Markets Retract: HSBC Monitor

Jan 26, 2011 | Corporate Member News

***Canadian SME confidence down as household debt drags on consumer spending***

Confidence in future business growth among small and medium enterprises (SMEs) within developed markets has dropped, while emerging markets continue to increase, according to HSBC’s semi-annual Small Business Confidence Monitor. For Canadian SME respondents, although confidence remains in positive territory, it is down slightly.

Mark Watkinson, Executive Vice President, Commercial Banking & Regional President, Central and Eastern Canada, HSBC Bank Canada, said: “Six months ago, Canadian SMEs expressed optimism by gradually loosening the purse strings on capital investments, but they remained cautious in their economic outlook and hiring intentions. Now, all three areas are in steady-as-she-goes territory, which suggests a slower recovery than expected – businesses are clearly feeling the impact as higher household debt levels have begun to dampen consumer spending.”

The semi-annual HSBC Small Business Confidence Monitor gauges the six-month outlook of SMEs on local economic growth, capital investment plans and recruitment. This is the largest international survey of its kind, covering 6,389 SMEs across 21 markets in North America, Asia, the Middle East, Europe, and Latin America. The results were used to calculate an index ranging from 0 to 200, where 200 represents the highest confidence level, 0 represents the lowest, and 100, neutral.

Most markets across the globe held a positive outlook over the past half year, with Saudi Arabia leading the way at 174 (+29 points, compared to the August 2010 HSBC Small Business Confidence Monitor), followed by India at 143 (+22), Egypt at 132 (+16), Singapore at 149 (+12), the UAE at 132 (+10), and Argentina at 124 (+10). Confidence levels in China, Turkey and Vietnam all saw slight decreases. Only one market, the UK, slid back to negative territory, at 91 (-13).

Both Canada and the United States saw drops in their confidence levels, with Canada now sitting at 112 (-7) and the United States at 108 (-12).

Outlook on local economic growth
In Canada, 72 per cent of respondents indicated that they expect local GDP growth to maintain the same pace over the next six months, an increase of 11 per cent over the past half year. Interestingly, as many respondents expect the economy to grow (14 per cent), as they expect the economy to retract (14 per cent).

Outlook on capital expenditure
Overall, there was a relatively small movement in respondents’ views on investments compared to six months ago, pointing to continued stability over the next half year. Among Canadian SMEs, 58 per cent of respondents indicated that their plans for investing in their own businesses through capital expenditures have not changed, up from 54 per cent. Capital expenditure plans are down 1 per cent from the previous survey. Only 11 per cent of businesses would decrease capital expenditures slightly or significantly.

Outlook on recruitment plans
In Canada, 76 per cent of respondents foresee their hiring plans remaining unchanged in the coming six months. A slight decrease, to 21 per cent from 24 per cent of respondents, plan to hire more staff in the next six months, while the number planning to reduce staff hovers at 3 per cent.

Barriers to doing business internationally
The top five barriers to doing international business, according to Canadian international SMEs surveyed, are as follows: 1) Concern about dealing in foreign currencies (25 per cent); 2) difficulty in maintaining strong customer and vendor relations from afar (24 per cent); 3) lack of knowledge, contacts and experience of overseas markets (22 per cent); 4) competition in overseas markets (21 per cent); and a three-way tie for 5) complexity of certain international markets, local regulations and legal complexities, and reliability of overseas partners (16 per cent).

Emerging versus developed markets
The decline in confidence within developed markets has brought the overall global index down, while emerging markets indicated sustained growth. In fact, emerging markets continued to hold a positive local economic outlook with almost half (43 per cent) forecasting an increase in the growth of their local economy over the next six months. In developed markets, only 12 per cent predicted an increase in local economic growth over the next six months, while 26 per cent predicted a decrease. Increases in recruitment and capital expenditures remain largely stable globally, with 33 per cent of emerging market SMEs planning to increase their staffing (vs. 17 per cent in developed markets) and 48 per cent planning to inject more into investments over the next six months (vs. 27 per cent in developed markets).

SMEs expanding internationally in the next two years
Research findings show the number of SMEs across the globe conducting international business activities is expected to expand from 29 per cent to 40 per cent by 2013. The increase is driven by domestic SMEs, 18 per cent of which plan to become international by 2013. International SMEs are demonstrating aggressive cross-border expansion plans with almost half (48 per cent) intending to expand their international operations in the next two years to increase revenue.

About the survey
The semi-annual HSBC Small Business Confidence Monitor gauges the six-month outlook of SMEs on local economic growth, capital investment plans and recruitment. This edition of the survey captures the views of 6,389 SMEs across 21 markets in North America, Asia, the Middle East, Europe, and Latin America – the largest international survey of its kind. The survey was conducted in November and December 2010, with a sampling error of +/- 5.7 per cent, at a 95 per cent confidence interval.

About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 260 offices, including over 140 bank branches, and is the leading international bank and trade finance bank in Canada. With around 8,000 offices in 86 countries and territories and assets of US$2,418 billion at 30 June 2010, the HSBC Group is one of the world’s largest banking and financial services organizations.

For further information:

Media enquiries

Ernest Yee
Vice President, Corporate Affairs
HSBC Bank Canada
(604) 641-2973
                    Fabrice de Dongo
Senior Manager, Public Affairs
HSBC Bank Canada
(416) 868-8282

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