Confidence recovers from April low as more than a third of partners expect growth over next 12 months; hopes mount that Asia will lead the revival. Claire Ruckin reports

Business confidence at City law firms has edged up, driven by hopes of a swift recovery in Asia, with more than a third of partners now expecting revenue growth over the next 12 months.

The latest Legal Week business confidence survey found 42% of responding partners were expecting increases in fee income at their own firm over the next year, including 18% who were expecting fee income growth of more than 5%.

A further 31% were expecting static income, with 27% predicting falls in turnover. The result is an improvement in the previous quarterly business confidence poll in April, which found only 22% expecting any growth and 37% forecasting falls in revenue.

However, there was a fall in the number of partners expecting double-digit increases in fee income from April, with only 3% of respondents making such a prediction, compared to 7% in April (see graph).

Eversheds chief executive Bryan Hughes told Legal Week: "We are going to see a range of revenue growth across the top 50 over the next year reflecting where firms sit in the market. Some of the national firms with a focus solely on the UK, or even regional marketplaces, may struggle to hold their top line, whereas firms with international operations should benefit from a degree of insulation."

Confidence regarding the wider market has also shown a marked improvement since April, when many major law firms were responding to the recession with heavy job cuts.

Thirty eight percent of respondents were expecting growth across the top 50, compared to 26% in April. Likewise, the proportion of partners expecting falling income across the group has fallen from 52% three months ago to 27%.

Nevertheless, some senior lawyers remain more downbeat regarding growth prospects. Slaughter and May practice partner Paul Olney told Legal Week: "The top 50 as a whole could perhaps see a contraction by 10% or more over the next 12 months given that the economy will still be in recession and there will be fewer transactions. Although there will be sector-specific corporate activity, overall activity will, I suspect, be down."

CMS Cameron McKenna managing partner Duncan Weston said: "We are hoping for [revenues] to go up, but we are preparing for a wide scenario that revenues could be up or down by 15%, or anywhere in between. To prepare for a scenario with a 30% span is unusual, but markets are very uncertain."

Much of the improving mood at commercial law firms appears due to rising confidence in key emerging markets, in particular Asia. Asked which region would be the strongest performer in the next year, Asia was the clear leader cited by more than half (58%) of respondents, up from 32% in April. This finding underlines the rapid rebound of confidence in the Asia region.

In contrast, Central and Eastern Europe/CIS/Russia and the Middle East/North Africa were cited respectively by only 4% and 6%. The UK was cited by 13%, just behind the US on 16%. Hopes for Western Europe remain bleak with only 4% citing the region as the top performer.

Weston added:  "Emerging markets will do better than Europe. They have a better growth potential because they have more disposable income. The key question for all law firms is how to get involved in that growth. It is a difficult task to become a big player in emerging markets. We are working on that through the CMS network with a BRIC-type policy."

DLA Piper UK managing partner David Bradley added: "Analysts suggest Asia will be first to recover and our experience would support that. It feels a good time to have a significant presence in the region."