Slow journey to global growth after omicron road bump

SHELLY-ANN MOHAMMED, head of ACCA Caribbean

Since entering 2022 on the crest of the latest wave in the covid19 pandemic, economists and policy makers around the world are optimistically seeing signs of calmer waters ahead.

It’s unsurprising that confidence in the global economy took another knock at the end of last year with the rapid spread of omicron, and businesses and governments alike now seek reliable indicators of the economy getting back on track.

As a profession, accountants hold pivotal roles in the management of every type of organisation – from global corporations through to governments and small businesses. And it’s from this privileged vantage point that our members can detect the first rumbles of economic change.

With members spanning 178 countries and regions, they are in a unique position to take a temperature-check of economic activity on a global scale. This is what we do each quarter, joining forces with IMA members to ask questions about their economic confidence and fears which are published in our Global Economic Conditions Survey*.

Omicron has clearly wreaked havoc in many regions with our latest survey finding global confidence dropped by 12 points at the end of 2021. Western Europe, the region experiencing the fastest spread of the outbreak, reported the biggest drop of 28 points. Only North America and Asia-Pacific recorded improved confidence and this increase was modest in both regions.

Confidence also fell in South Asia and Africa, highlighting the ongoing challenges faced by emerging markets.

Impact of covid19 and inflationary pressure

The positive news it that omicron may have been a bump in the road on our journey to economic recovery, with its impact likely to be modest and short lived. Global orders were relatively unchanged in the last quarter of 2021 and there was little movement in the "fear indices" – the measure indicating concerns of suppliers and customers going out of business.

Cost increases and supply shortages are of course more troubling, with inflationary pressures being felt in many markets around the world. Concerns over costs doubled over the course of the last year and inflation is likely to be the biggest economic risk in 2022.

This could potentially lead to a greater degree of monetary tightening than anticipated, which would in turn slow growth and prevent a return to the pre-pandemic trends.

Taking all indicators into account, we can be optimistic about our progress towards a more normal economic environment, and that we should see global GDP growth of around four per cent this year.

Emerging market opportunities

Among all of the risks and threats there are of course always opportunities. In our latest Global Economic Conditions Survey we’ve highlighted the potential for growth in emerging markets relating to both advancing digital technology and growing demand for clean energy.

Adoption of digital technology can drive down costs, increase productivity and stimulate demand. The advantage emerging markets have is their ability to bypass the "bricks and mortar" stage of business development, instead beginning with digital, much as we’ve seen in the banking and financial services sector. Since 2017, digital revenue has been growing in emerging countries at an average annual pace of 26 per cent, compared with 11 per cent in the developed ones.

Climate change

While climate change poses very obvious risks, there are also significant opportunities ahead. Energy consumption is expected to rise three times faster in emerging markets and significant investment will be needed to both deliver this generation demand while also meeting the net zero target by 2050.

Much of the investment needed is likely to come from private international sources with a major focus on investing in renewables. While wind and solar power have low electricity supply costs once established, they require large upfront capital cost. This increase and transition in energy generation also has the potential to create new jobs, as the appropriate domestic infrastructure and regulatory environment is developed.

Looking ahead

We began our Global Economic Conditions Survey in 2009, during times of unprecedented volatility following the financial crisis. Back then we knew that while there was no shortage of commentary and views on the outlook for recovery, there were few concrete indicators to turn to – and no indications about what accountants thought.

Over a decade later, and in the midst of turmoil caused by an entirely different beast, the experience and insights of our and IMA’s global members are as valuable as ever as we all seek to navigate the post-pandemic future.

By collating these perspectives, ACCA and IMA seek not to just monitor turbulence and provide a snapshot of current issues and challenges, but to ensure we can all respond appropriately, whether that’s through informing business strategy or influencing public policy.

Together, our members provide a sound bellwether for the future economic climate, and despite the recent storms, there’s cautious optimism for 2022 as we look forward to continued global economic growth, albeit at a modest pace.

* The survey of 2,471 members of the ACCA (the Association of Chartered Certified Accountants) and IMA® (Institute of Management Accountants) was conducted during late November and early December 2021.