Global mid-market returns to positive health

With the global economy still struggling to shake off the effects of the coronavirus pandemic, a new study has found that mid-market businesses are recovering their confidence. However, a ‘supply crunch’ could still weigh down progress, unless action is taken from businesses now.

Grant Thornton’s ‘Global Business Pulse’ looks at the global economy every six months to weigh up the number of restrictions standing in the way of mid-market business success, while contrasting it with the positivity of outlook among the segment. Since the first half of 2020, and the onset of the global pandemic, positive sentiment has been heavily outweighed by restrictions on trading – leaving the index at its lowest level in over a decade.

While Grant Thornton’s ‘Pulse’ is still at a lower positive-point than any time in the last ten years, the firm has now confirmed that it is at least positive. This is something a release from the firm called “a tremendous achievement by this important segment of the economy,” especially given the strong correlation with real GDP change – something it asserts points to wider economic recovery. At the heart of the recovery is a much stronger outlook among mid-market companies.

One of the most comprehensive business surveys of its type and based on interviews with around 5,000 mid-market leaders between May and June 2021, over two-thirds of such firms told Grant Thornton’s researchers that they are now feeling slightly or very optimistic about their own economies. This is places the market’s optimism 22% higher than levels seen in in the second half of 2020, and now even well above pre-Covid levels. The improved outlook chimes with the World Bank’s forecast of a 5.6% growth in the world economy in 2021 and what it terms ‘its strongest post-recession pace in 80 years.’

Leaders also feel much more bullish about the prospects for their own businesses. 57% now expect to increase revenue in the next 12 months and 56% expect to grow profits. Both indicators are approaching levels not seen since 2018, helped to some degree by lower comparisons during the pandemic.

However, by Grant Thornnton’s calculations, the mid-market’s ‘health’ is still far from full strength. The amount of ‘restrictions’ felt by businesses are also at their highest in the post-recession years. In particular, supply constraints are elevated across a number of areas, including access to finance, availability of skills and regulation and red tape. For example, nearly 60% of firms highlighted concerns about the availability of skills, with higher competition for workers leading to elevated concerns about labour costs and higher expected salary increases.

Grant Thornton noted that this ‘supply crunch’ is unlikely to drag the index crashing back down to earth, but it will weigh on further improvements in the broader economy. As a result, the firm stated that company leaders should tackle these issues now to avoid any slowdown – and get first grab of resources. This will also be important as firms look to cope with inflation, caused by supply bottlenecks.

“They must take control over the things that they can control,” advised Robert Hannah, leader of the international business support function at Grant Thornton International. He added, “You learn to deal with inflation by being more efficient. Working out how much you can pass on and how you can become more efficient – use of technology is critical here. Prioritise investments that make you more efficient and be careful about debt levels and perhaps even manage them down.”