Survey - Global Trade Drying Up
Global Trade Drying Up, Says Largest Ever Economic Survey of Finance Professionals
Leading accountancy bodies join forces to provide powerful insight into challenges facing business
Finance professionals believe there will be a renewed global economic downturn in 2012, as the largest ever quarterly survey of professional accountants shows that international trade continued to dry up at the end of last year.
The latest survey of 3,775 professional accountants, including 1,414 senior executives, from around the world, is the result of the collaboration between two major professional bodies. ACCA (the Association of Chartered Certified Accountants), is the global body for professional accountants and has run the Global Economic Conditions Survey since 2009. They have now joined forces with IMA® (Institute of Management Accountants), the association for accountants and financial professionals in business, which has offices in the U.S., China, Switzerland and the United Arab Emirates, to develop an even more robust and powerful record of the state of the global economy.
Their views paint a sobering picture of the global economy, according to report author Manos Schizas, senior policy adviser with ACCA: “Almost three quarters of the finance professionals we sampled believe that the global economy is either deteriorating or stagnating, with nearly half reporting a loss of confidence in the prospects of their organisations during the last quarter of 2011.”
Majority of U.S. Finance Professionals Expect the Global Economy to Stagnate or Deteriorate
The headlines of the survey reveal that both business confidence and perceptions of the global economy are very similar in the U.S. to those reported throughout North America. Only 18 percent of respondents reported increased confidence in the prospects of their organizations, against 38 percent who reported a loss of confidence, and the majority (69 percent) expected the global economy to stagnate or deteriorate further in the near future. While this may sound gloomy, in fact North America is quite optimistic compared to the total IMA/ACCA sample. Government spending is expected to rise modestly over the next five years, however, on balance respondents also believe that even relatively modest increases will prove unsustainable.
The U.S. is not alone in pursuing what local respondents see as unsustainable stimulus. In fact, the same perceptions are to be found in other major ACCA/IMA markets, including mainland China (ex-Hong Kong), Russia and Malaysia. As in all of these markets, on balance the respondents’ assessment of government’s economic policies is negative.
“Once again, the biggest loss of confidence came in Hong Kong SAR, Singapore and Cyprus, all countries heavily exposed to international trade and cross-border financial activity, which also reported some of the worst perceptions of the global economy; this among other things suggests to us that international trade is in decline,” said Raef A. Lawson, Ph.D., CMA, CPA, IMA vice president of research.
Similarly, the survey found that professionals in utilities firms, which are often domestically focused and fairly robust to economic conditions, reported some of the strongest net confidence gains. On the other hand, pharmaceuticals, IT and communications firms were some of the hardest hit.
At the regional level, Central and Eastern Europe has performed the worst in terms of business confidence, and the Asia-Pacific region is losing confidence at a rate faster than that of Western Europe. Africa, the Middle East, and South Asia remain the most upbeat regions, in terms of both business confidence and respondents’ perceptions on the state of the global economy.
While respondents in some regions have said there are encouraging signs from resilient levels of new orders, the damage done to global demand over the last year has been substantial.
“After three consecutive quarters of weakening demand, the cumulative effect is beginning to take its toll on business, and with banks around the world facing an uphill climb towards capital adequacy tightening finance is now adding to this challenge. The result is a deteriorating outlook for business cash flow around the world which may be driving a rise in business failures. Inflationary pressures, which built up steadily over the past two years, are now easing, but the underlying causes of this trend may be just as worrying as last year’s rise in operating costs,” said Mr. Schizas.
In line with this deteriorating outlook, survey findings point to weakening trends in employment and investment globally. ACCA and IMA find this particularly worrying, because these two indicators have remained weak throughout the last three years and are crucial to any kind of sustainable recovery.
Finally, the survey’s findings suggest governments have to perform a tough balancing act in coming years if they are to support a flagging economic recovery. Sustainable fiscal stimulus is a luxury that not all governments can afford, especially among developed nations, while austerity is proving hard to reconcile with sustained growth. As a result, government approval levels are at a record low, just when they are most likely to influence business confidence.