Global Hope Is Misplaced, Say Finance Bosses

Finance experts say global economic optimism is misplaced, with one exception – the UAE

The continuing uncertain global economic outlook has got the world’s top bean counters into a spin. In a survey of over 2,700 accountants, most finance execs said that any optimism for the economy in 2012 was “misplaced”.

The survey, undertaken by ACCA (the Association of Chartered Certified Accountants) and IMA (the Institute of Management Accountants), cautioned that growth across the world’s most developed economies has stalled and – despite green shoots – the global economy is no less fragile than it has been at any point in the last three years.

China’s faltering economy dominated the survey findings this quarter, although ACCA and IMA stressed that there are few signs of the hard landing many commentators had feared. However, this reality didn’t halt a fall in confidence and investment, despite increasing business opportunities.

Survey editor Manos Schizas, senior economic analyst with ACCA said: “The point now is to see how far and how fast the Chinese slowdown will travel. Our members in Africa tend to feel any fallout from Asia fairly quickly, and there could be implications for other markets which trade with China.”

According to the survey, the flip side of the Chinese slowdown is a recovery for the US economy, where investment is on the rise and confidence is high, despite significant potential problems.

UAE leads the recovery

Among the markets that were well represented in the ACCA/IMA sample, the UAE remained the most confident, with 35 per cent of respondents reporting confidence gains against 27 per cent reporting losses.

While the overall loss of momentum is consistent with global trends, it is worth noting than only the UAE recorded net confidence gains in the second quarter of 2012. Not surprisingly, positive attitudes towards the global economy are also more resilient in the UAE than elsewhere, with 46 per cent of respondents thinking the recovery is on track, down from 53 per cent in Q1 2012.

Cash flow pressures have eased significantly in the Emirates over the last three months, with fewer professionals worrying about the survival of their suppliers and incidences of late payment are down too. Crucially, new orders are on the rise as the government continues to wrap up its debts.

However, all is not well: respondents reported a surge in input prices and significant exchange rate fluctuations in the second quarter, largely due to the dirham’s dollar peg and expectations of a further round of quantitative easing in the US. Respondents also reported a slowdown in the labour market, with employers preferring to invest more in their existing staff.

Lack of faith in government spending

With growth faltering once again, finance professionals surveyed by ACCA and IMA are rethinking their attitudes towards public spending.

Accountants working in major markets such as the US, China, Russia, Malaysia, or Pakistan – economies relied on by others for export opportunities – believed that government fiscal stimulus is already unsustainable. And it was in only a few markets, such as Singapore or the UAE, that the respondents believed that governments could spend both robustly and sustainably.

The sheen of austerity policies has worn off as the global economy continues to witness damp results the world over. It’s clear that there is a limit to what even countries with strong credit ratings and no liquidity restraints can do – think the US and China. Until then, the world and its accountants wait.