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Global accountants cite lower confidence
November 16, 2010, Tuesday
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THE fragile global recovery has gone into reverse in the last three months, with investment and business confidence suffering a serious setback, according to the latest survey of finance professionals by ACCA (the Association of Chartered Certified Accountants).
Nearly half (49 percent) of the 1,895 professional accountants surveyed by ACCA believe that conditions are stagnating or deteriorating, and for the first time in the survey's two years, ACCA's key economic and business confidence indicators have not pointed towards improving conditions.
Crucially, the outlook for new orders has weakened in the last three months and more respondents are now reporting concerns about whether their suppliers can continue to be viable.
Inflation continued to rise in the last quarter, with 35 percent of respondents seeing an increase in their operating costs, while slightly more accountants reported that their firms and clients could not get vital financing from banks and other lenders.
While ACCA has warned that it is too early to tell whether any particular economies are about to suffer a renewed downturn, it expects that the next quarter's figures will show whether we are dealing with a temporary "pause for breath" or something much more dangerous.
The probability of the latter is reinforced by a sharp deterioration in the survey's investment indices. ACCA believes that governments' gradual withdrawal of support for investment over the past nine months is now beginning to tell as demand and financing conditions weaken once again.
Accountants based in Western Europe believe that their governments will reduce spending substantially over the next five years, and those in the Americas are slowly coming to anticipate some measure of austerity as well.
On the other hand, ACCA members in Africa and Asia expect public spending to rise substantially.
Of those, members in the Asia Pacific region are much more confident that their governments can afford increased levels of spending, while those based in South Asia and Africa expect a tough balancing act ahead.
China was one of only a few major ACCA markets where accountants were more optimistic about the global economic recovery than they had been three months ago.
Nearly two thirds of the total of 140 respondents here (63 percent) believed that conditions were either improving or about to do so. However, business confidence did not improve in proportion to this increased optimism - only one in three respondents (33 percent) reported rising confidence in their organizations' prospects, while nearly a quarter (24 percent) reported loss of confidence.
Unlike previous quarters, the continued weakness of Western economies, especially Europe, had relatively little to do with this lag in confidence.
Rather, a combination of rising operating costs (reported by 43 percent), adverse changes in exchange rates (reported by 23 percent) and an increase in late payments (reported by 17 percent) were responsible for the subdued confidence levels recorded.
With profit margins tightening, those members in China that did see opportunities for themselves and their clients were increasingly concerned with capturing niche markets (reported by 19 percent) and adapting to changes in demand as the global economy recovers (reported by 15 percent).
Though international expansion remains the most common type of business opportunity cited, the percentage of respondents reporting opportunities of this sort (28 percent) is no longer rising.
Satisfaction with government policies is once again on the rise following six months of falling ratings.
One third (33 percent) now rate the government's handling of the economy as "good" or "very good".
Respondents here expected a stronger medium-term fiscal expansion than their colleagues in any other major ACCA market, with 18 percent expecting government spending to rise sharply over the next five years and another 53 percent expecting it to rise moderately.
As with other economies in the region, respondents here believe this amount of spending is sustainable, due to China's low debt burden and strong growth prospects.
(The article is adapted from the latest ACCA survey of finance professionals.)
Nearly half (49 percent) of the 1,895 professional accountants surveyed by ACCA believe that conditions are stagnating or deteriorating, and for the first time in the survey's two years, ACCA's key economic and business confidence indicators have not pointed towards improving conditions.
Crucially, the outlook for new orders has weakened in the last three months and more respondents are now reporting concerns about whether their suppliers can continue to be viable.
Inflation continued to rise in the last quarter, with 35 percent of respondents seeing an increase in their operating costs, while slightly more accountants reported that their firms and clients could not get vital financing from banks and other lenders.
While ACCA has warned that it is too early to tell whether any particular economies are about to suffer a renewed downturn, it expects that the next quarter's figures will show whether we are dealing with a temporary "pause for breath" or something much more dangerous.
The probability of the latter is reinforced by a sharp deterioration in the survey's investment indices. ACCA believes that governments' gradual withdrawal of support for investment over the past nine months is now beginning to tell as demand and financing conditions weaken once again.
Accountants based in Western Europe believe that their governments will reduce spending substantially over the next five years, and those in the Americas are slowly coming to anticipate some measure of austerity as well.
On the other hand, ACCA members in Africa and Asia expect public spending to rise substantially.
Of those, members in the Asia Pacific region are much more confident that their governments can afford increased levels of spending, while those based in South Asia and Africa expect a tough balancing act ahead.
China was one of only a few major ACCA markets where accountants were more optimistic about the global economic recovery than they had been three months ago.
Nearly two thirds of the total of 140 respondents here (63 percent) believed that conditions were either improving or about to do so. However, business confidence did not improve in proportion to this increased optimism - only one in three respondents (33 percent) reported rising confidence in their organizations' prospects, while nearly a quarter (24 percent) reported loss of confidence.
Unlike previous quarters, the continued weakness of Western economies, especially Europe, had relatively little to do with this lag in confidence.
Rather, a combination of rising operating costs (reported by 43 percent), adverse changes in exchange rates (reported by 23 percent) and an increase in late payments (reported by 17 percent) were responsible for the subdued confidence levels recorded.
With profit margins tightening, those members in China that did see opportunities for themselves and their clients were increasingly concerned with capturing niche markets (reported by 19 percent) and adapting to changes in demand as the global economy recovers (reported by 15 percent).
Though international expansion remains the most common type of business opportunity cited, the percentage of respondents reporting opportunities of this sort (28 percent) is no longer rising.
Satisfaction with government policies is once again on the rise following six months of falling ratings.
One third (33 percent) now rate the government's handling of the economy as "good" or "very good".
Respondents here expected a stronger medium-term fiscal expansion than their colleagues in any other major ACCA market, with 18 percent expecting government spending to rise sharply over the next five years and another 53 percent expecting it to rise moderately.
As with other economies in the region, respondents here believe this amount of spending is sustainable, due to China's low debt burden and strong growth prospects.
(The article is adapted from the latest ACCA survey of finance professionals.)
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