Unexpected fiscal policy changes shatter business confidence.

With policymakers in the major economies working hard to restore and maintain confidence levels and shifts in sentiment indicators playing a key role in risk assessments of investors, it is worthwhile to consider the various influences on this qualitative economic measure. Our analysis of the various indicators of consumer and business confidence that are regularly published highlight several common factors that have the potential to cause marked shifts in sentiment; including: 1. Changes in interest rates and/or exchange rates, particularly if they are rapid, large and unexpected 2. Swings in the business cycle and associated movements in employment/unemployment levels and business investment intentions 3. Shifts in the relative prices of nondiscretionary goods and services, notably petrol, healthcare, education and utilities prices 4. Large external economic and/or financial shocks, such as the financial crisis of 2008/09 and the Eurozone sovereign debt crisis of 2010/11 5. Announced policy shifts in the stance of government fiscal policy, including large structural spending cuts or increases/decreases in taxation rates.