Majority of US Finance Professionals Expect the Global Economy to Stagnate or Deteriorate

Is it time to stop thinking globally, and to start focusing locally? That’s more or less the consensus among more than 3,700 professional accountants who believe not only has international trade continued to dry up, but that the global economy will continue to erode while those industries that focus domestically will inspire greater confidence.

In what is being billed as the largest ever quarterly survey of professional accountants, nearly 3 out of 4 finance professionals sampled believe that the global economy is either deteriorating or stagnating, with nearly half reporting a loss of confidence in the prospects of their organizations during the last quarter of 2011.

BANKS FACE AN UPHILL CLIMB

“After three consecutive quarters of weakening demand, the cumulative effect is beginning to take its toll on business, and with banks around the world facing an uphill climb towards capital adequacy tightening finance is now adding to this challenge. The result is a deteriorating outlook for business cash flow around the world which may be driving a rise in business failures. Inflationary pressures, which built up steadily over the past two years, are now easing, but the underlying causes of this trend may be just as worrying as last year’s rise in operating costs,” said report author Manos Schizas, senior policy adviser with ACCA.

In line with this deteriorating outlook, survey findings point to weakening trends in employment and investment globally. ACCA and IMA find this particularly worrying, because these two indicators have remained weak throughout the last three years and are crucial to any kind of sustainable recovery.

The latest survey of 3,775 professional accountants, including 1,414 senior executives, from around the world was a collaboration between two major professional bodies, the ACCA (the Association of Chartered Certified Accountants) and the IMA (Institute of Management Accountants) aimed at developing an even more robust and powerful record of the state of the global economy.

ACCA is the global body for professional accountants and has run the Global Economic Conditions Survey since 2009. IMA is an association for accountants and financial professionals in business with offices in the US, China, Switzerland, and the United Arab Emirates.

DOMESTICALLY-FOCUSED FIRMS SHOWED STRONGEST CONFIDENCE

The survey found that professionals in utilities firms, which are often domestically focused and fairly robust to economic conditions, reported some of the strongest net confidence gains. On the other hand, pharmaceuticals, IT, and communications firms which operate on a global arena were some of the hardest hit.

CENTRAL AND EASTERN EUROPE SHOWED LOWEST CONFIDENCE

At the regional level, Central and Eastern Europe has performed the worst in terms of business confidence, and the Asia-Pacific region is losing confidence at a rate faster than that of Western Europe. Africa, the Middle East, and South Asia remain the most upbeat regions, in terms of both business confidence and respondents’ perceptions on the state of the global economy.

While respondents in some regions have said there are encouraging signs from resilient levels of new orders, the damage done to global demand over the last year has been substantial.

Finally, the survey’s findings suggest governments have to perform a tough balancing act in coming years if they are to support a flagging economic recovery. Sustainable fiscal stimulus is a luxury that not all governments can afford, especially among developed nations, while austerity is proving hard to reconcile with sustained growth. As a result, government approval levels are at a record low, just when they are most likely to influence business confidence.

−Fred Yager, Editor, eFinancialCareers, North America