Confidence falters as one third of partners predict static or falling revenues for 2013. Alex Newman reports

The prolonged eurozone downturn and economic stagnation in the UK are continuing to dent business confidence within the legal profession, with one in three partners expecting revenues to fall or remain static at their firm over the coming year.

Legal Week's latest business confidence survey found 28% of respondents forecasting static revenues for 2013 – almost double the proportion making the same prediction in July, when the survey was last conducted – while a further 7.5% expect revenues at their firm to drop next year.

Sixty-five per cent of survey respondents said they expect revenues to grow next year, down from almost 80% predicting as much back in July, when almost half (45%) of all respondents expected income growth of more than 5%. Less than one in three (30%) now expect revenues at their firm to rise by more than 5% next year.

The drop-off in confidence levels since the summer has been starkly illustrated by a raft of recent lay-offs at top law firms, including news last month that DLA Piper is launching a redundancy consultation set to affect 251 lawyers and back office staff. Other major firms to have announced redundancies since the summer include Slaughter and May, Mayer Brown, Addleshaw Goddard and Pinsent Masons.

Weil London managing partner Mike Francies (pictured) said: "The world economy isn't exactly booming, so it's not surprising that lawyers are more cautious about the year ahead. People have been lowering expectations regarding the market – everyone has been concerned about the US fiscal cliff and the wall of debt. 

"The legal market isn't growing, so now the question law firms are asking instead is what share of it they can get – it has become a case of being more clever about making more defined offerings." 

In terms of priorities for the year ahead, partners still overwhelmingly view Asia as the market with the best prospects for growth, with 55% predicting the continent will be the best-performing region in 2013. The US and the UK were both selected by 15% of respondents, with Western Europe, the Middle East and North Africa identified by just a handful of respondents and Central and Eastern Europe chosen by none.

Slaughter and May practice partner Paul Olney said: "There will be opportunities in certain sectors – financial institutions, for example – as well as Asian-focused growth for some clients. But the fundamental problems that inhibited deal flow in 2012 will remain next year: the weak economic backdrop in Europe and a continuing lack of liquidity. So I think it will be much the same as 2012 – a flattish year without much that is hugely exciting."

Broken down by practice areas, 58% of respondents said litigation would be law firms' top investment priority in the coming 12 months, with corporate the next most popular (38%), followed by banking (33%). Bird & Bird chief executive David Kerr (pictured) said: "Market conditions will remain tough in most practice areas, and, while Asia practices might see more growth, US business may remain stagnant. Revenue growth will be difficult to achieve. We are in a prolonged period of difficulty that looks set to continue in the coming year. 

"It is vital to recognise that this is the new normal and that conditions are unlikely to return to how they were in the bubble before 2008."

However, Linklaters managing partner Simon Davies sounded a more positive note: "While the economic background remains weak, uncertainty is creating investment opportunities. Caution has understandably dominated corporate strategy, resulting in subdued M&A activity. But we are seeing growing signs that this could be beginning to change. 

"There is money available and there are deals to be struck: 2013 may be the year when more corporates and other investors begin to shake off some of that caution to take advantage of the opportunities that the rapid structural shifts in the global economy in recent years have created."

Partners on business confidence

• 35% predict static or falling revenues at their firm over the next 12 months
• 10% predict double-digit growth over the next 12 months
• 55% identify Asia as the best-performing region for the year ahead
• 58% identify litigation as a top investment priority for the year ahead