The sharp rebound in global confidence in the aftermath of Russia’s invasion of Ukraine has ended, according to the latest economic conditions survey from ACCA and IMA of accountants and CFOs across the globe.
Ongoing aggressive interest rate hikes by central banks, and China’s weaker than expected economic recovery, have likely left an impact on the sharp rebound in global confidence, offsetting any benefit from receding fears of a global banking crisis and falling inflation, ACCA noted.
However, there is no evidence that a global recession is on the cards despite the stalled sharp rebound in global confidence, the accountancy body said.
Sentiment at the global level remains around its long-term average, as do the key New orders, Capital expenditure, and Employment indices, ACCA added.
There were also some notable regional trends when it comes to confidence as follows, according to ACCA.
- Confidence fell sharply in Asia Pacific and the export-sensitive Western Europe.
- But confidence in North America actually rose for the fourth consecutive quarter, with gains in the New orders, Capital expenditure, and Employment indices.
- This would suggest that the US economy may continue to defy predictions of a recession.
- It is somewhat surprising that the aggressive monetary tightening has not had a material impact on the GECS (Global Economic Conditions Survey) 'Fear' indices which reflect respondents’ concerns that customers and/or suppliers may go out of business.
- Both these indices continue to improve (see chart below), which suggests little concern about the impact of higher interest rates, recession risks, or the growing number of bankruptcies.
- That might just be a case of calm before the storm, as the lagged effect of tighter monetary policy works its way through the global economy and financial system.
- Indeed, the indices measuring global problems accessing finance and securing prompt payment both deteriorated in 2Q, although neither looks particularly worrying yet by historical standards.
- Meanwhile, the percentage of global respondents concerned about increased costs declined slightly again, although it remains very elevated by historical standards, suggesting that central banks may have more work to do.
“The survey aligned with my sense of how things are developing in the global economy, with some loss in momentum through 2Q,” said Jonathan Ashworth, chief economist at ACCA. “Things don’t look particularly alarming though, and a global recession does not look imminent. By region, things aren’t looking that great in Asia Pacific and Western Europe.”
Chinese policymakers may need to increase policy stimulus, while the ECB and BoE might want to tread carefully with monetary tightening, he noted.
In contrast, the US economy is looking pretty resilient, suggesting the Fed may be able to carry off the much talked about soft landing, Ashworth noted.
“Looking at the change in the GECS Confidence Indices over the year, one notable factor is the resilience of North America.,” said Dr. Susie Duong, director of Research at IMA. “With a stronger than expected growth of the US economy in 2023 Q2, it suggests that an imminent recession for the US does not seem likely this year, although Asia and Europe could increasingly become a drag if growth decelerates significantly there.”
The robustness of the global ‘fear’ indices is also unexpected, but it’s also less clear that will still be the case at the turn of the year, she noted.