Economic confidence rises as clear signs of business improvement emerge, said ACCA recently.
While the accountancy body’s Q1 2023 Global Economic Conditions Survey (GECS) shows confidence lower than a year ago, it rose for the third consecutive quarter as fears fade over the prospects of a recession in 2023.
This better news is underlined by the two GECS “Fear’’ indices which reflects respondents concerns that customers and/or suppliers may go out of business, ACCA noted.
Fieldwork for the 2023 Q1 survey took place between 21 February and 7 March 2023 and gathered 802 responses: 382 from ACCA members and 420 from members of Institute of Management Accountants (IMA).
Both these series improved on Q4 2022, the organisation said, adding that worries about suppliers have fallen to the lowest level since 2020.
Although new orders have flatlined this quarter, the survey showed improvements in both employment and capital expenditure (capex).
Despite central banks’ rate hikes and the delayed effect of monetary policy tightening on the real economy, as well as recent challenges in the banking sector, it may be premature to sound the “all clear”, ACCA pointed out.
The global economy entered 2023 with more momentum than many had expected, said Jamie Lyon, head of skills, sectors and technology at ACCA.
Economic confidence rises as business comes to terms with the fallout from the Russian-Ukraine war, he added.
“The economic climate has been helped by a faster-than-expected relaxation of China’s zero-COVID policies, and more normal energy prices in Europe, that should help to reduce headline inflation and may bring about a pause in central banks’ tightening of monetary policy, but there are still some downside risks that may prevail,” Lyon noted.
Cost pressures might have peaked
Although global new orders are flat-lining, economic confidence rises could be due to the decline in the level of concern about increased costs, which might also be a one factor sustaining the rebound, ACCA said.
Cost pressures look like they may have peaked, although they still remain well above the median recorded over the survey’s history, ACCA pointed out.
Commodity prices remain subdued, and Europe has benefitted from natural gas prices returning to levels seen before Russia’s invasion of Ukraine, the organisation added.
In addition, global confidence has edged up for the third consecutive quarter, not only because cost concerns have eased, but also because worries about accessing finance and securing prompt payment have declined, ACCA .
Payments improving
In addition, reports of problems with prompt payment fell to the second lowest level in the survey’s history, ACCA noted, adding that the improved macro conditions also appear to have encouraged companies to revisit their capex and hiring plans.
When asked how they planned to respond to the changing economic environment, the net balance of companies planning to increase investment in capital and staff rose on the quarter, as did the net balance of companies planning to increase job creation, ACCA said.
This is something of a surprise given the rapid tightening of global monetary policy by the world’s central banks, the organisation added.
The past 12 months have seen the most aggressive simultaneous tightening of policy in more than 40 years in terms of pace, scale, and breadth, ACCA observed.
“It’s curious that this has not yet had a material impact on financing conditions and corporates’ capex and hiring intentions,” ACCA said. “But monetary policy works with long and variable lags, which suggests that this could still become a problem later in the year.
