The recovery of global confidence is swift and strong in Q2 of 2021 returning global activity to the pre-pandemic level of late 2019, said ACCA and IMA recently when releasing results of their Global Economic Conditions Survey (GECS).
Fieldwork for the Q2 2021 survey took place between June 1 and June 15, 2021 and collected 1,100 responses from ACCA and IMA members, including more than 100 CFOs, according to the two organisations.
While global confidence dipped slightly in Q2, this occurred after the biggest jump in confidence in the 10-year history of the survey last time, ACCA noted.
At the same time, there is a divergence in recovery between advanced and emerging economies.
Advanced economies are benefiting from rapid progress on vaccinations and spending of accumulated savings that are allowing a return to more normal economic conditions, ACCA pointed out.
Yet many emerging market economies continue to face economic weakness, as limited vaccinations allow further waves of COVID infections, the accountancy body added.
The survey highlights this divergence with buoyant regional surveys in North America and Europe but much weaker ones in South Asia and Africa, ACCA said.
Key findings
- The key global activity indicators, such as orders, recorded further improvement in the Q2 survey and are now above the level in Q4 2019, the period immediately before the pandemic began.
- Overall, the world economy has now recovered to its pre-pandemic size. This has been driven by rapid growth in the United States and China, the two biggest economies; there are many economies still with plenty of ground to make up.
- The two “fear” indices – measured by concern that customers and suppliers may go out of business – both declined in the Q2 survey, confirming that the extreme uncertainty created by the COVID-19 crisis has fallen back towards more normal levels.
- The GECS index of concern about operating costs increased in the latest survey and is now at its highest level since Q3 2019. But concern remains below the level that would point to a sustained big rise in inflation.
A modest increase in inflation over the next five years
Respondents across regions expect a modest increase in inflation over the next five years, but a significant minority in North America expect much higher inflation. In all regions, at least two-thirds of respondents expect inflation to be slightly or much higher than now.
Compared with the Q1 2021 survey, there has been a marked increase in inflation expectations in North America, while in Western Europe, there are expectations of a modest increase in inflation over the next five years, according to ACCA.
To a large extent, the rise in inflation will be temporary, the result of collapsing demand last year, followed by a strong rebound that has resulted in rapid increases in commodity prices and supply shortages in some sectors, said Michael Taylor, Chief Economist at ACCA.
“The rise in inflation can therefore be seen mainly as a welcome reflection of a strong recovery in demand that has resulted in supply shortages and a rebound in commodity prices, both of which are likely to prove temporary. For now, at least, underlying inflationary pressures are generally subdued,” he noted.
Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research and policy, said that for 2021, global Gross Domestic Product (GDP) growth is likely to approach 6%, an exceptionally strong rebound after the 3.5% fall last year.
This growth will be concentrated in advanced economies where levels of vaccination are now such that social distancing restrictions can be relaxed and economic conditions return to normal, he added.
