The latest business tendency survey is out and shows significantly improved optimism building in the finance industry on future business prospects.
The highlights for finance are:
- four of the ten indicators saw significant improvement in the latest quarter;
- Business Optimism and Future Business Activity were both strongly positive; the Business Optimism indicator recorded its highest level to date, whilst the Future Business Activity indicator recorded its highest level for two and a half years, since mid-2011;
- the Profitability indicator also improved in the latest quarter, recording its most positive level since mid-2011;
- in contrast, the Employment indicator declined in the latest quarter, returning to the slightly negative level seen in late 2012;
The graph illustrates the very strong recovery in business sentiment, a trend we identified in the latter half of 2013.
We have seen significant interest from a number of sources but especially Asia and the Middle East with investors looking to participate in the British and European recovery. The Financial Crisis and then more recently the Euro crisis were major deterrents to new investment. With fears around both abating and with reports of bouyant business order books, falling unemployment and upward revisions in GDP growth, the international investment community is priming new funds for investment.
The favourite asset classes we are seeing are Real Estate and Private Equity, with new business enquiries and deals both up according to our member firms. The Real Estate market is predicted to show 10% growth in 2014 on the back of an improving outlook.
On the face of it one conflicting signal in the survey was employment intentions, mildly negative, but a closer look reveals a rational explanation for this apparent contradiction.
One of the longest global slowdowns ever has resulted in an intense focus on business costs, as revenue growth became more difficult. This discipline of tight cost management has become embedded in business behaviour with a constant search for efficiencies. Rather like the super tanker this kind of embedded direction of travel takes some time to change.
This trend has been amplified by mergers and acquisitions especially in our trust industry. The weight of regulation and compliance costs driven out of the global crisis has seen firms looking to achieve obvious merger synergies in IT, HR, Risk, financial control, and other disciplines so the early merger phase will often result in some slimming, as the business resets in readiness for growth. The next phase usually soaks up productive capacity but then often is quickly followed by new hiring in client facing activities.
The other major trend underway is in Private Equity as institutional investors and pension funds in particular are keen to come out of low yielding cash in order to meet the demands of large numbers of new retirees, as the baby boomer generation passes into retirement, many in generous final salary schemes. This means pension funds need better returns than cash can give, and as the market stabilises their propensity to invest through alternative asset classes such as Private Equity is rising.
Given Jersey is the leading Real Estate structuring centre in Europe and a major base for Private equity companies, these bouyant business trends are feeding through and in time will benefit other service industries, such as legal, banking, administration, and audit.
The long financial slowdown has made us all cautious about calling a recovery, but pleasingly we are seeing a real strengthening of business optimism on the back of new deals and enquiries. Our Annual Members meeting next week will showcase how we intend to capture the upside in the global recovery and how we will maintain our leading position in international finance.