City firms approach 2011 in a warily upbeat mood as fears of a double-dip recession fade, but public spending and eurozone troubles are expected to impact on growth. Friederike Heine reports

City partners are shrugging off concerns about the eurozone and domestic spending cuts to face 2011 in a generally upbeat mood, with nine out of 10 law firms expecting revenue growth over the year.

Legal Week's quarterly business confidence survey found that nine out of 10 partners (90%) expect revenues at their own firm to grow over the next 12 months, with 88% expecting revenues across the top 50 as a whole to increase.

Twelve percent of respondents predict double-digit increases in turnover at their own firm – rising against the 6.5% who predicted the same three months ago. Nearly half of partners (46%) expect revenue growth of between 5% and 10%, with a third of partners (32%) predicting growth of up to 5%.

Eight percent predict revenues will stay static, with 2% expecting to see a slight drop. The figures are a long way off the all-time low of April 2009, when only 22% of partners expected growth and 37% expected to see revenues decline.

Linklaters corporate partner Richard Godden commented: "There is a pervasive sense that clients are becoming more active again – many deals that have been thought about for some time are starting to look interesting. However, while the outlook is showing improvement, it is a nervous and fragile market that could easily be adversely impacted by external events."

Indeed, some partners have warned that external events such as the troubled eurozone could negatively impact their revenues. Ashurst senior partner Charlie Geffen commented: "It is hard to predict as there is still a lot of uncertainty. There remain significant issues surrounding the euro and we do not yet know what steps governments and regulators will take to protect the currency – there is still a lot of deleveraging to come."

He added: "The austerity measures many European countries are adopting are only just beginning to come through and it would be brave to assume significant economic growth outside of Asia. Having said that, there may be more opportunistic M&A activity and one assumes that litigation and regulatory work will increase."

The survey found a slightly improving mood regarding the UK economy, which was cited by 15% to be the best performer over the next 12 months, against 6% for Western Europe and 8% for the US. Over the last two years, City partners have repeatedly been more bearish on the UK economy than other regions in Legal Week research. Asia was once again clearly touted as the best-performing region, with six out of 10 respondents (60%) identifying it above other regions.

Eversheds chief executive Bryan Hughes commented: "I predict Eversheds will see fairly flat to modest growth overall but we expect to see growth in Asia specifically and perhaps some areas of the Middle East. Our investments will take place internationally as well as in litigation, which is going strong. Our targets in our strategic areas in the City will see us focus on growing our strengths in corporate and also project finance. "

In terms of investment priorities, corporate and litigation were named as the most important practice areas, with 57% and 48% of partner votes respectively.

Hughes added: "It will be another difficult one to two years ahead. The market has seen a little bit of growth but there are huge public sector cuts taking place around the country. We have managed to avoid a double-dip recession but the market has not recovered fully – there is still intense pressure on clients, as well as intense pricing pressure."