ACCA: Confidence rebound stalled, but no downturn imminent

The latest economic conditions survey from ACCA and the Institute of Management Accountants (IMA) of accountants and CFOs around the globe suggests that the sharp rebound in global confidence in the aftermath of Russia’s invasion of Ukraine has ended.

Ongoing aggressive interest rate hikes by central banks, and China’s weaker-than-expected economic recovery, have likely weighed on confidence, offsetting any benefit from receding fears of a global banking crisis and falling inflation.

There is no evidence that a global recession is on the cards, though. Sentiment at the global level remains around its long-term average, as do the key new orders, capital expenditure, and employment indices.

There were some notable regional trends.

Confidence fell sharply in Asia-Pacific and the export-sensitive western Europe.

But confidence in North America actually rose for the fourth consecutive quarter, with gains in new orders, capital expenditure, and employment indices.

This would suggest that the US economy may continue to defy predictions of a recession.

It is somewhat surprising that the aggressive monetary tightening has not had a material impact on the global economic conditions survey (GECS) "fear" indices, which reflect respondents’ concerns that customers and/or suppliers may go out of business.

Both these indices continue to improve, which suggests little concern about the impact of higher interest rates, recession risks, or the growing number of bankruptcies.

Of course, it may just be a case of calm before the storm, as the lagged effect of tighter monetary policy works its way through the global economy and financial system.

Indeed, our indices measuring global problems accessing finance and securing prompt payment both deteriorated in Q2, although neither looks particularly worrying yet by historical standards.

Meanwhile, the percentage of global respondents concerned about increased costs declined slightly again, although it remains very elevated by historical standards, suggesting that central banks may have more work to do.

Shelly-Ann Mohammed, ACCA head of Caribbean and South America, said: "The Caribbean has a different take on the top three risks compared with the rest of the world. One in three financial professional here see regulatory/compliance/legal as the major risk. Nowhere else has that as the number one. The Caribbean also differs in emphasising technology/data/cyber security risk – 25 per cent mentioned that – and only then did they join the rest of the globe looking at the risk of the general economy and inflation."

The survey saw contributions from across the Caribbean – Barbados, Bermuda, Grenada, Guyana, Jamaica, Puerto Rico, St Vincent and TT.

Mohammed said, "In terms of the economy the latest survey suggests that the recovery of the past six-nine months may have stalled.

"There is nothing to suggest that this is going to lead to a serious downturn, but it should serve as a reminder that the lagged effects of tighter monetary policy may have further to run."

Jonathan Ashworth, chief economist at ACCA, said, “The survey aligned with my sense of how things are developing in the global economy, with some loss in momentum through Q2. Things don’t look particularly alarming, though, and a global recession does not look imminent.

"By region, things aren’t looking that great in Asia-Pacific and western Europe. Chinese policymakers may need to increase policy stimulus, while the ECB and BoE might want to tread carefully with monetary tightening.

"In contrast, the US economy is looking pretty resilient, suggesting the Fed may be able to carry off the much-talked-about soft landing”.

Dr Susie Duong, director of research at IMA, said, “Looking at the change in the GECS confidence indices over the year, one notable factor is the resilience of North America. With a stronger-than-expected growth of the US economy in Q2 2023, it suggests that an imminent recession for the US does not seem likely this year, although Asia and Europe could increasingly become a drag if growth decelerates significantly there.

"The robustness of the global ‘fear’ indices is also unexpected.

"However, it’s less clear that will still be the case at the turn of the year."