Business Confidence Falls Again as Real Economy Takes a Hit

Confidence in the global economy fell in Q3 2012 according to a worldwide survey of 2,500 finance professionals.


Sixty-seven percent now believe that the global economy is stagnating or reversing. Further analysis suggests that this latest fall in confidence is due almost entirely to changing business fundamentals – such demand, access to finance, prompt payment and inflation - as opposed to respondents’ sentiment.


The downturn is firmly focused on the real economy with small and medium-sized enterprises being the worst hit.


The quarterly Global Economic Conditions Survey (GECS) undertaken by ACCA (the Association of Chartered Certified Accountants) and IMA (the Institute of Management Accountants), highlighted continued uncertainty across the Asia-Pacific region, which is still feeling the effects of the economic downturn in China.


China was not the source of this pessimism, but rather its neighbouring countries, who are suffering not only the Chinese downturn but the persistently sluggish recovery of Western economies.


In contrast, the survey saw a glimmer of hope in Western Europe, where respondents said that they had started to see the beginnings of a credible plan to resolve the region’s sovereign debt crisis, the promise of a more active role for the European Central Bank as well as continued efforts towards fiscal integration.


The Middle East is now the most confident of the GECS regions, with 30 percent of respondents here reporting an increase in confidence, while 52 percent believe the state of the global economy is improving. Africa on the other hand, continues to slow down as it has throughout the year.


Capital spending fell around the world in Q3 2012. Growth has continued to disappoint, with just seven per cent of respondents reporting that their organisations planned to increase investment.


However, the backlash against austerity is still evident, and attitudes towards public spending have shifted in favour of increased spending in major Western markets including US, Canada, UK and emerging markets such as China, Malaysia, and UAE.


Additionally, there appears to be greater cashflow stress at the global level, which appears to have grown particularly among small businesses, as well as large corporate’s and in public sector entities in emerging markets. This does not appear to be a result of fiscal policy, although this did make some difference to the opportunities available to private sector enterprises.


Survey editor Manos Schizas, Senior Economic Analyst with ACCA and report author said: "This quarter has seen business confidence fall for all the right reasons. Around the world, and with few exceptions, the fundamentals of the business environment are deteriorating, and businesses are once again having the kinds of liquidity problems we thought we had put behind us."


One theme that emerges clearly from the survey is the interconnectedness of the global economy.


Raef Lawson, IMA’s Vice President of research commented; "The slowdown in Asia; the Eurozone debt crisis; the sluggish US recovery; all are feeding into each other and no region is unaffected; in fact, the degree to which movements in the GECS indices are synchronised between regions is uncanny."

Schizas maintains that there are still many reasons to be optimistic. "Europe’s debt crisis showed signs of being contained in the third quarter, at least for the time being, and finance for investment is being unlocked in many parts of the world."