Global Economic Conditions Survey by ACCA and IMA Finds Middle East as Only region with Improved Confidence in Q2 and Q3
- Global Economic Confidence Falls Most Significantly in North America, yet increased in Asia Pacific according to survey of accountants - While order levels across regions rise above pre-pandemic levels, operating costs at their highest level since the start of 2019
The latest Global Economic Conditions Survey (GECS) by ACCA (the Association of Chartered Certified Accountants) and IMA® (Institute of Management Accountants) found that economic growth connected to pandemic recovery weakened in Q3 2021. Confidence jumped in Asia Pacific (+11) and South Asia (+20), after falls in the previous survey. The Middle East emerged as the only region to record improved confidence across six straight months spanning Q2 and Q3 of 2021.
For the South Asia region, confidence recovered in Q3 and is now at its highest level in over six years. Moreover, the region also showed a rise in orders after a fall in the previous survey.
In contrast, global confidence fell by nine points in Q3, with the largest fall in North America (-41) followed by Western Europe (-24) pulling down the score. However, both regions are still at relatively high levels of confidence, as is the case globally.
The full report is available here, or at https://www.imanet.org/insights-and-trends/global-economic-conditions-survey.
GECS is the largest regular economic survey of accountants and finance professionals around the world jointly carried out quarterly by IMA and ACCA.
The report found that when looking at orders—which is a useful benchmark to measure real economic activity—there was a split between advanced regions and emerging markets. There were falls in orders affecting North America and Western Europe contrasted with modest improvements in emerging markets.
However, the wider economic prospects in developed economies remain brighter than in emerging markets, where low vaccination rates continue to drag on economic recovery. Apart from Africa, all major regions are now reporting order levels above their pre-pandemic level, indicating a continued global recovery.
Another positive indication from the survey are the two “fear indices,” which measure concern that customers and suppliers may go out of business. Both declined again in Q3 and are now back in line with their long-run average levels after spiking around Q2 2020.
However, concern about operating costs is now at its highest level since the start of 2019 and increased five points globally in Q3. This is driven by higher transport and commodities costs, leading to higher inflation and weaker growth now.
“The Q3 Global Economic Conditions Survey (GECS) points to an easing in the pace of global economic growth towards the turn of the year,” said Loreal Jiles, vice president of research and thought leadership, IMA. “There is a wide regional variation in changes in confidence in the latest survey. After exceptionally strong growth in the first half of the year, there are signs of a moderation in growth as year-end approaches. Continued prevalence of COVID-19 infections, especially of the Delta variant, is in some cases, undermining confidence.”
“A moderation in growth was to be expected, as the pace set earlier this year could not be maintained indefinitely,” said Michael Taylor, chief economist at ACCA. “Slower growth is concentrated in advanced economies where supply shortages and higher prices are constraining output: underlying demand remains strong. However, we are still seeing an encouraging picture of global economic recovery overall.”
“Concerns about extra operating costs for businesses should prove temporary as the price mechanism operates to encourage increased supply and reduced demand,” Taylor continued. “But for now, the effects are to moderate global growth from a rapid to a steady pace. Nevertheless, growth should be sufficient for more economies to regain their pre-pandemic level of activity by the end of the year.”
“Although economic growth has slowed in many regions and the prevalence of the Delta variant of COVID-19 particularly in developed countries expectedly drove down global confidence, underlying demand remains strong,” said Jiles. “As COVID-19 vaccinations continue to increase and we remedy supply shortages and increased prices in advanced economies, there is an opportunity for overall confidence to increase significantly.”
Confidence in the Middle East region increased further in Q3 as the continued global recovery supported oil prices. The orders index had the greatest increase of all GECS regions in this survey, moving above the pre-pandemic level of Q4 2019. The region includes some countries that have well-advanced vaccination rates, the UAE being a prime example where more than 90% of the population has been vaccinated. This, along with improved oil revenues, should support continued economic recovery.
The outlook for emerging markets (Ems) is poor relative to that for advanced economies. Low levels of vaccination remain a major headwind for most EM economies, especially as infections of the highly transmissible Delta variant of the COVID-19 virus are rising. The relative performance of the different EM regions remains broadly the same as it has so far this year. Commodity exporters have benefited from a recovery in global demand and prices, while countries heavily reliant on overseas visitors are significantly hampered by continuing travel restrictions. EMs are also facing debt challenges as deficits persists and external debt increases. Debt-servicing costs on average remains manageable but are vulnerable to a rise in U.S. interest rates. More immediately, many EMs lack the fiscal capacity to support business and households during further waves of COVID-19.
The global economy – headwinds from supply shortages
After an exceptionally strong rebound in global activity in the first half of this year, there is now a loss of momentum. A moderation in growth was not unexpected as the pace earlier this year could not be maintained indefinitely, but the early onset of the slowdown has been surprising. One factor is the continued prevalence of the Delta variant of COVID-19 which is requiring restrictions in some countries and generating caution and a loss of confidence in others. But increasingly, it is supply shortages, higher prices and dysfunctional jobs markets that are responsible for taking the steam out of the global economy. It was perhaps inevitable that supply issues would emerge given the volatility in demand over the last 18 months: an unprecedented collapse in the first half of 2020 followed by a very rapid and strong recovery was always going to put a huge strain on supply chains and push inventory levels out of kilter with demand. But these effects have been greater and more widespread than many analysts expected.
The jobs market issue is more complex. Unemployment continues to fall in most advanced economies, reflecting the recent pace of economic recovery. But unemployment rates are still above their pre-pandemic levels, indicating an overall slack in the jobs market. In many cases however, there is now a combination of a very high number of vacancies coinciding with a degree of unemployment.