Global Economy Faces Dangerous Period of Uncertainty


 
Author: Katrin Maier
Location: New York
Date: 2014-11-06

The global economy entered a “dangerous period of uncertainty” during the third quarter of 2014, according to the ACCA/IMA Global Economic Conditions Survey (GECS), the largest economic survey of professional accountants in the world, published by ACCA (Association of Chartered Certified Accountants) and IMA® (Institute of Management Accountants).

“It is clear that the buoyancy of the financial sector has masked the true picture in the real economy, where despite growth capital being at its most accessible since the global economic crisis, the lack of genuine business opportunities has meant that investment has been subdued around the world”

The survey notes that business confidence in the real economy and capital spending have both taken a direct hit, stressing that only the continued strength of financials and select emerging markets help maintain the illusion of recovery.

The third-quarter GECS findings, based on the views of 1,000 finance professionals around the world, show that a third of global respondents (33 percent up from 32 percent in the last quarter) experienced a loss of confidence in the prospects of their organizations in the last quarter, while only 28 percent reported confidence gains, down from 30 percent in the previous quarter. A majority of finance professionals (58 percent) were still optimistic about the state of the economic recovery in their countries, with 37 percent pessimistic – down one percentage point from the last survey.

While the loss of confidence at the global level appears to be only marginal on aggregate, the new report unearths a number of worrying trends: a second consecutive quarter of falling global business confidence; a growing divide between financials and the real economy; a growing reliance on government spending; fears of deflation in the developed markets; and a synchronized fall in capital spending around most of the world.

“It is clear that the buoyancy of the financial sector has masked the true picture in the real economy, where despite growth capital being at its most accessible since the global economic crisis, the lack of genuine business opportunities has meant that investment has been subdued around the world,” said report author Manos Schizas, senior economic analyst with ACCA. “The drop in demand for oil and other commodities has also been a test for many emerging economies, which rely on fuel and mineral exports for continued growth and financial stability.”

“The GECS Q3 report comes following some well-publicized issues which were originally thought to be relatively contained, such as the Ukrainian crisis, the Ebola outbreak in West Africa, and the rise of the Islamic State,” said Raef Lawson, Ph.D, CMA, CPA, IMA Vice President of Research and Policy. “The impact of these events on economic confidence raises serious questions about how the global economy would react to a truly destabilizing global event.”

The report found that the fundamentals of the U.S. economy strengthened in the third quarter of 2014. Most noticeable was the improvement in cashflow conditions, as well as marginally improved access to business and investment opportunities and growth capital. Despite positive signals from businesses suggesting a more robust recovery is at hand, and despite fundamentals strongly supporting investment, the macro outlook in the U.S. has darkened, with growing uncertainty impacting investment and breaking the generally positive trend established over the past year.

There is reason to believe that U.S. macro-economic sentiment will recover in late 2014 as sector-level evidence points to a turning point in the business cycle. Respondents in the retail, wholesale, and distribution sectors have generally led the business cycle, while their colleagues in the manufacturing and engineering sectors have lagged. The year-long slowdown in the former appears to have come to an end in the third quarter of 2014, suggesting a more robust recovery may be at hand in the U.S. Meanwhile, regional performance has converged substantially since early 2013, a trend which largely continued in the latest quarter, with the exception of the Northeast, where business confidence has weakened. Businesses in the West and the South are currently leading the U.S. recovery.

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