From the prospect of a US-China trade war through to continued uncertainty surrounding Brexit, 2018 does not seem to be brimming with reasons to be cheerful. So it was perhaps surprising to see the results of ACCA’s quarterly Global Economic Conditions Survey (GECS) that showed notable resilience for the first quarter with global economic confidence at its highest since our first analysis in Q1 2009.
Yet as we approach the tenth anniversary of the global financial crisis, it is worth looking more closely at how the economic mood has changed in the intervening years.
GECS was launched a few months after the global financial crisis hit hard in 2008. There had been seismic rumblings in 2007, with the collapse of Northern Rock and BNP Paribas freezing its funds, but the rift well and truly broke in September 2008 with the collapse of Lehman Brothers.
GECS March 2009 was our original foray into monitoring the economy, gauging views of 800 of our members across 80 countries, many witnessing first-hand the economic aftershocks of the sub-prime scandal at the time. GECS is now the largest regular economic survey of accountants around the world, both in its ability to regularly reach 1,300-plus ACCA and IMA members each quarter and in the range of economic variables it monitors.
In 2009 respondents were forecasting a sluggish credit-constrained recovery, threatening some of the world’s leading economies with stagnation. In Q1 2009, ACCA’s findings suggested that confidence was lost, with countries that were once the engines of world economic growth struggling. The decrease in demand and supplier credit was seen to be causing much more damage than the banking sector’s then newly-found aversion to risk. Not surprisingly, the sector where confidence fell the most dramatically was in financial services, where 78 per cent of finance professionals were less confident than in 2008.
In Q1 2009, contraction in world trade came as a shock to finance professionals in the Asia Pacific region, especially China, who were feeling less confident than their Western colleagues. A dent in sentiment likely caused by subdued trade flows on comparatively export-driven economies.
Perhaps most difficult to account for was the professionals in emerging markets and the developing world who expected the global economy to bounce back sooner – with African countries such as Botswana, Ghana, Kenya and Zambia having the most optimistic respondents - markets that, in many cases, saw collapses in GDP growth in line with many developed economies.
This optimism has been perhaps the most consistent story of GECS, with emerging markets often confident about outlook. This pattern is present again in Q1 2018, with our latest survey finding that confidence was high in Africa, second only to North America. And despite the political uncertainties caused by Brexit, confidence in the UK and Western Europe also remains strong.
While relatively buoyant compared to last quarter, globally the least confident markets in Q1 2018 were Central & Eastern Europe and the Middle East.
Ultimately, this latest survey tells us is that outlook for the global economy is at its best for some time. But we cannot ignore the immediate and long term risks. Indeed, GECS has always pointed to risks on the horizon. Back in 2009, one of the main risks was the economic downturn’s effect on salaries and skills training for the profession. But it also highlighted pockets of optimism, with suggestions that professional accountants needed to play a vital role in areas such as risk management and other complex business areas as the crisis continued.
In 2018, the risks are more aggressive than ever with Q1 2018 pointing to the biggest risk being the possibility of a trade war between the United States and China, given proposed measures including tariffs, which could escalate tension and impact other regions globally.
If this doesn’t happen, it’s likely the global economy would see another year of strong growth. Many commentators agree that escalation is dangerous and we could be entering into an era of protectionist trade policies. We’ll be watching this issue closely for Q2 2018.
The biggest question is, if we are finally seeing the green shoots of recovery from the global financial crisis, have any lessons been learned? We have certainly seen a raised concern amongst businesses for managing and identifying risk, and preparing accordingly. It is surely no coincidence that we are increasingly seeing more professional accountants at CFO and CEO level of global business, as organisations seek a strategic approach to guide them through disruptive times.
Nonetheless, how economies are managed and regulated is under close scrutiny. While most national economies are now growing once again, it’s unclear how sustainable this growth will be.
ACCA and IMA both work to demonstrate how an effective global accountancy profession can contribute to sustainable global economic development, and we both believe that accountants add considerable value to business, and never more so than in the current environment.
Whether these latest results indicate a turning point remains to be seen. Yet as the world continues to assess the impact of the past decade, it would be wise to pay close attention to the views of the accountants on the front line as well as those at the very top.