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New ACCA and IMA survey on Global economy

Global economy find fragile confidence in early 2021

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New ACCA and IMA survey on Global economy

The latest Global Economic Conditions Survey (GECS) released today from ACCA (the Association of Chartered Certified Accountants), and IMA® (Institute of Management Accountants) found that global confidence in the fourth quarter of 2020 stalled and remains fragile at the start of 2021.

The GECS, the largest regular economic survey of more than 3,000 senior accountants and finance professionals worldwide, captured the true scale of the global recession caused by the response to the coronavirus pandemic, noting that global economic prospects have deteriorated since the survey was completed on December 8. The full report is available here or at https://www.imanet.org/insights-and-trends/global-economic-conditions-survey?ssopc=1.

The survey notes that the global economy contracted by around 4.5% in 2020, the biggest fall in global activity in several decades. Having recovered from lockdown-imposed weakness in the first half of the year, many economies again faced weakness as a second wave of COVID infections triggered renewed lockdowns. The survey envisions a steady recovery this year, but continued uncertainty limits the bounce in consumer and business confidence, with pre-crisis output not being reached until mid-2022. The 2020 Q4 findings also reveal that:

  • Global orders, employment and capital investment indices recorded a further modest improvement but still point to activity well below the pre-crisis level in the fourth quarter of 2019.
  • The “fear” indices—concern about customers and suppliers going out of business—edged lower in 2020 Q4 but remain elevated, clearly underlining the extreme uncertainty in the global economic outlook at the start of 2021.
  • Inflation concerns remain negligible with concern about costs staying close to an all-time low.
  • The confidence measure fell back in North America, having surged in the prior third quarter. By contrast, there was a big improvement in Middle East confidence, buoyed probably by continued recovery in oil prices.
  • More than 50% of respondents in the Asia Pacific, North America and South Asia expect a sustainable recovery in the second half of this year.

“Global Economic Conditions Survey (GECS) points to little change in confidence as there is great uncertainty about the path of economic growth this year,” said Hanadi Khalife, senior director, MEA, India, and Africa operations at IMA. “The survey shows that the global economy is in a fragile state at the start of 2021. However, emerging markets are set for modest recovery this year.

What is heartening is that 50% of respondents in Asia-Pacific, North America and South Asia said they expect a sustainable recovery in the second half of this year. The most optimistic in this respect is the Middle East, where 54% expect recovery during the first half of the year. But much of this depends on the evolution of the COVID virus and variants relative to the progress of vaccination programs.”

Raef Lawson, PhD, CMA, CPA, IMA vice president of research and policy, said, “The pandemic has forced millions into extreme poverty as emerging markets suffered a recession for the first time in decades last year. Policy responses to the pandemic have left the public finances of most economies in a perilous state with budget deficits in the range of 10% to 15% of GDP in many countries with debt to GDP ratios well over 100%.”

He added, “All this presents a big test for policymakers in terms of when to withdraw policy support and when policy should be tightened to rebuild public finances. Policy mistakes would risk derailing economic recovery.’

Fazeela Gopalani, Head of Middle East at ACCA, added, “Last year was the worst for the global economy for several decades, but despite this bleak backdrop, the Middle East has seen a big jump in confidence in Q4. We were the most optimistic region, with 54% expecting to see recovery in the first half of this year. This could be due to the combined effects of easing geopolitical tensions and continued recovery in oil prices and demand. Oil prices jumped by around 25% to $50 per barrel in the last few months of 2020.”

She added, “However, activity indicators remain relatively weak, reflecting continued Covid-19 related restrictions on domestic activity. Recovery could gain momentum in the second half of the year, depending on the evolution of the COVID virus and progression with the vaccination roll-out.”

Michael Taylor, Chief Economist at ACCA, noted that since polling concluded in December, many countries have witnessed increased COVID-19 infection rates, prompting governments to re-impose restrictions, including national lockdowns. This means that global economic prospects early in 2021 have deteriorated since the Q4 survey. At the same time, there has been progressing on vaccines’ approval, raising hopes of a permanent improvement in economic conditions later this year. However, unemployment rates will rise in many countries, potentially undermining consumer confidence and limiting a rebound’s strength.

Middle East region

The Middle East region recorded a big jump in confidence in Q4, possibly due to the combined effects of easing geopolitical tensions and continued recovery in oil prices and demand. Oil prices jumped by around 25% to $50 per barrel between September and December. But activity indicators remain relatively weak, reflecting continued COVID-19-related restrictions on domestic activity and in many cases fiscal limits caused by relatively low oil prices (low relative to those on which budget assumptions were made). 

“There are significant risks to the outlook for the year ahead,” Lawson said. “Much depends on the evolution of the COVID virus and variants, rates of infection and the speed and effectiveness of vaccination programs. The central case is economic weakness early on in 2021 as the virus dominates, followed by recovery gathering momentum later in the year as vaccination takes effect. Significant risks are surrounding the timing of these developments. Besides, the emergence of vaccine-resistant variants of the COVID virus, unexpected adverse side effects from vaccination and low vaccine take-up are also health-related risks that could cause deviations in the recovery path.”

Fieldwork for the 2020 Q4 survey took place between November 20 and December 8, 2020, and attracted 3086 responses from ACCA and IMA members, including over 300 CFOs.

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