News release

Continental drift: Europe suffers a crisis of confidence Business confidence in Europe has fallen further over the last quarter creating a bleak outlook heading into 2012, according to new figures from Grant Thorntons International Business Report (IBR). With the global economic outlook dominated by the crisis in the eurozone, fears are increasing that business growth will become even more difficult than in 2011. The latest research shows that business optimism in the EU in the fourth quarter of 2011 has deteriorated further and now stands at net -17%, down from 0% in Q3. Within the eurozone, optimism has fallen from 2% in Q3 to -16% in Q4 2011. Huge drops have been reported across the continent including in France (-14% to -46%) which may lose its AAA credit rating endangering the effectiveness of the European Financial Stability Fund Belgium (2% to -46%), the Netherlands (-8% to -44%) and the PIGS economies (-35% to 54%). Although business optimism remains significantly higher than anywhere else in Europe, even in Germany business confidence has fallen, dropping ten percentage points compared with Q3. In contrast, many regions around the world have seen levels of optimism rise in the last quarter. Businesses in the BRIC nations reported a rise from 25% to 34%, and North America a small rise from 3% to 6%. Latin America saw a rise from 54% to 61%, driven mainly by continued optimism in Brazil. Ed Nusbaum, CEO of Grant Thornton International, said: Heading into 2012, were seeing a continental drift as Europe suffers an acute crisis of confidence and the threat is that this could spread worldwide. Business leaders are very uncertain about 2012 they simply do not know how things will turn out. That uncertainty is sapping confidence and choking prospects for business growth. It all suggests that a recession in the eurozone is now probable. Policymakers in Europe have some job on their hands in 2012. The concern for businesses is that a focus on austerity rather than economic growth is damaging their own growth prospects. Certainly, the resolution of the crisis and securing the future of the euro is top of their New Years wish list. The research also suggests global trade is suffering. Having risen by ten percentage points in Q3, the proportion of businesses citing a shortage of orders rose again in Q4, up five percentage points to

37% globally. This result was largely driven by an increase of nine percentage points across the eurozone, but North America (up seven) and the BRICs (up four) are also suffering. European business growth prospects have also declined markedly over the past quarter. Expectations for increasing revenues and profits in 2012 are down by 10 and 12 percentage points respectively, whilst the waves of unemployment sweeping across the continent show little sign of abating soon with hiring expectations down by six percentage points. Longer term prospects also look bleak with investment in new buildings and plant & machinery both registering double digit declines, although investment in R&D was up marginally.

Ed Nusbaum added: Around the world, growth prospects are in the balance. Businesses are having to work harder than ever to maintain margins and competitiveness in the face of powerful economic headwinds. Vital to the situation improving or deteriorating is the fate of the eurozone. This threatens to undermine business prospects around the world, not just in Europe. Businesses in higher growth economies such as China and Brazil remain positive for now but Europe is the worlds largest single market and a key trading partner. The effects of a further downturn will resonate even in these high growth markets.