BRIC outlook survey signals strong services expansion in 2008

Service providers in the BRIC region (Brazil, Russia, India and China) expect their rapid current growth to be sustained in 2008, according to a new survey.

Business activity, revenues, new business and profits are all forecast to rise strongly over the course of the next twelve months, said the 2007 KPMG Business Outlook Survey, which surveys around 1,400 service sector firms across the BRIC region.

According to the research, marked growth of revenues and profits is expected to sustain strong investment across the BRIC region, with employment and capital expenditure both forecast to rise sharply over the coming year.

The new survey revealed that exactly 70% of all companies expect their volume of work to rise over the coming year, against just 4% expecting it to decline. The resulting net balance of +65.7 pointed to an extremely upbeat outlook for future growth of activity. Service firms also expected the value of their work to increase in 2008, with 65% of respondents predicting expansion. Of the four countries covered, Brazilian service providers were the most optimistic about the outlook for their business over the coming year while, of the six sectors monitored, Financial Intermediation firms were most confident about future growth, with over 75% forecasting increased business activity and revenues.

“The findings certainly come as no surprise; the BRIC countries are all growing strongly with headline rates reflecting increased corporate profitability, continuing high capital spends – particularly on infrastructure and capacity building – and increased two-way flow of investments. The input of service providers as validators and business advisors is critical in these vibrant economies, both in domestic corporate expansion and as their customers globalise.

Ian Gomes, chairman of KPMG's New and Emerging Markets Group

Over 60% of all companies expect their profits to rise in the coming year – against just 3% anticipating a decline, said the report.

The sustained strong growth of activity across the BRIC area is expected to drive service sector inflation higher in 2008. Annual inflation of both input and output prices is forecast to accelerate, with rising costs predicted by 57% of companies and rising charges by 39% of firms. Higher oil, fuel, energy and labour costs were identified as key drivers of services inflation. Russia forecast the steepest rise in annual inflation of costs (net balance of +71.6) and China the lowest (+44.2).

Outsourcing of business activities by BRIC service sector firms is expected to increase during the next twelve months, with over a quarter of all respondents predicting a real terms rise in the value of their outsourcing. Trends varied substantially by country, however, with 56% of Russian service providers forecasting an increase in their outsourcing, while just 16% of their Chinese counterparts expected a rise.

Commenting on the latest survey findings, Ian Gomes, chairman of KPMG's New and Emerging Markets Group, said: “The findings certainly come as no surprise; the BRIC countries are all growing strongly with headline rates reflecting increased corporate profitability, continuing high capital spends – particularly on infrastructure and capacity building – and increased two-way flow of investments. The input of service providers as validators and business advisors is critical in these vibrant economies, both in domestic corporate expansion and as their customers globalise.”