Confidence in the global economy fell in Q3 2012, according to a worldwide survey of 2,550 finance professionals, with some 67 percent of respondents saying the global economy is stagnating or reversing. So reveal the findings of the fifteenth quarterly Global Economic Conditions Survey (GECS), undertaken in partnership by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA®).
Further analysis suggests that this latest fall in confidence is due almost entirely to changing business fundamentals - such as demand, access to finance, prompt payment, and inflation - as opposed to respondents' sentiment. Globally, the downturn is firmly focused on the real economy, with small and medium-sized enterprises being the worst hit.
The Northeast and South regions of the United States have been the least confident regions for the past two quarters, and, after controlling for sample influences, it is clear that little has changed in Q3 2012. Overall, about 21 percent of US respondents reported confidence gains, while 36 percent reported losses. Among the major GECS markets, only Canadians were more confident.
Thirty-four percent of respondents in the United States were relatively upbeat about the state of the global economic recovery, believing it to be on the right track, yet the majority, 61 percent, noted it was stagnating or deteriorating.
Judging from respondents' perceptions, the United States is running some of the least sustainable fiscal policies in the world, with spending already well above the level finance professionals considered appropriate, and it is likely to rise.
Some respondents felt that efforts to address the two major fiscal challenges, debt sustainability and the Fiscal Cliff, were put on hold prior to the November elections, adding to the uncertainty caused by economic conditions and the elections themselves.
Implementation of the Affordable Care Act (which the Supreme Court upheld earlier this year) was cited by some respondents as having increased costs for some businesses, although others are thriving on the increased demand for software and consultancy services created by the new rules.
Despite falling natural gas prices (assisted by continued investment in alternatives such as shale gas), some businesses have continued to report increasing energy prices.
Finally, with the federal government in September outlining plans to engage in quantitative easing (QE) indefinitely, some respondents expressed concerns about the artificially low cost of credit.
The survey highlighted continued uncertainty across the Asia-Pacific region, which is still feeling the effects of China's economic downturn. China was not the source of this pessimism, but rather its neighboring countries, who are suffering not only from the Chinese decline, but the persistently sluggish recovery of Western economies.
One theme that emerges clearly from the survey is the interconnectedness of the global economy.
IMA Vice President of Research Raef Lawson, PhD, CMA, CPA, commented: "The slowdown in Asia; the Eurozone debt crisis; and the sluggish US recovery all are feeding into each other and no region is unaffected. In fact, the degree to which movements in the GECS indices are synchronized between regions is uncanny. But looking at the United States, there appear to be some significant signs of recovery. Many respondents reported increased housing starts in their regions, and there was also consensus that the auto industry is recovering. That said, it is worth noting how sensitive the United States is to 'spill overs' from economic conditions elsewhere - falling demand in both Europe and the Far East and rising prices in the latter."
Manos Schizas, senior economic analyst with ACCA and report author, said: "This quarter has seen business confidence fall for all the right reasons. Around the world, and with few exceptions, the fundamentals of the business environment are deteriorating, and businesses are once again having the liquidity problems we thought we'd put behind us."
Schizas maintains that there are still many reasons to be optimistic, adding: "Europe's debt crisis showed signs of being contained in the third quarter, at least for the time being, and finance for investment is being unlocked in many parts of the world."
Source: ACCA/IMA News Release