Business confidence in Asia-Pacific continued to recover from the collapse in late 2015 when businesses around the region were spooked by turmoil in China’s financial markets, according to the latest Global Economic Conditions Survey from ACCA and IMA (the Institute of Management Accountants).
The immediate panic may have passed – China’s markets have settled in 2016 – but concerns that China’s economy might be heading for a hard landing, or that the renminbi could be devalued, are lingering.
The survey showed that 63% of businesses in Asia-Pacific became less optimistic about the economic outlook in Q1, well above the global average of 48%.
This pessimism was reflected by the proportion of firms cutting investment in capital projects and laying off staff, which was also above the global average.
China does not fully explain the downbeat mood. Some economies, most notably Malaysia and Australia, have been hurt by the collapse in commodity prices; housing markets are weakening in Singapore and Hong Kong, which also face rising interest rates once the Fed resumes its tightening cycle; and, more generally, Asia-Pacific is traditionally a very open, export-reliant, region.
The slump in global trade helps explain why more businesses in Asia Pacific are reporting a drop in profitable opportunities (63%) and income (57%) than almost anywhere else.
Faye Chua, ACCA head of business focus, warns that global policymakers could be running low on ammunition in the fight to turn things around.
“In developed economies, governments have worked hard to stabilize their debt-to-GDP ratios. Will they want to reverse that good work and risk the wrath of bond investors? It’s highly unlikely. Instead, we’ll see the heavy lifting left to central banks. The problem with this approach is there are serious doubts around their ability – or indeed inclination – to provide more support.”
For Chua, pulling the global economy out of the doldrums is not going to be achieved in the short term: “Once income begins to drop and businesses stop hiring, getting them to a point where they are confident enough to begin doing so again is difficult - but vital.”
And for all the high-profile warnings, most forecasters still expect global growth to pick up in 2016 (even if the IMF has downgraded its forecast for the year to 3.2%). If they are right, then Q1 should prove to have been the low point for global confidence.
Businesses globally less optimistic
In the first quarter of the year, businesses were less optimistic about their prospects than at any other time in the past four years.
Almost half of the firms surveyed said that they were more pessimistic about their prospects than they were three months earlier. Less than one quarter had become more optimistic.
Globally, more than half of firms are either cutting or freezing employment, while only 14% are increasing investment in staff. As many as 42% of firms are cutting back on investment, up from 40% in Q4 2015.
Almost every region saw an increase in the number of businesses cutting capital expenditure last quarter, with North America the most notable exception. The number of firms that reported a drop in income in Q1 rose to 48%, compared with 46% in the final quarter of 2015. Only 12% of businesses saw an opportunity to increase their orders as a result of changes in the global economy last quarter.
Responding to the findings, Chua said: “Take North America out of the equation and the economic picture painted by this survey isn’t a pretty one. Emerging markets are besieged. Revenues for commodities firms have collapsed since mid-2014. And business confidence in China has fallen to its lowest level since our records began.”
“Almost half of businesses reported a drop in income in Q1. As a result, every region except North America saw a jump in the number of businesses cutting capital expenditure. With emerging economies continuing to struggle with low commodity prices and many businesses on a spending lock down, the outlook for the global economy is becoming increasingly gloomy.”