High Inflation and Low Investment Hampers Recovery, ACCA Survey Shows

LONDON, July 20, 2011 -

But Confidence is Rising in North
America and Caribbean 

Rising inflation and flat investment have kept the world’s
economic recovery stuck in reverse, the latest Global Economic
Conditions survey from ACCA (the Association of Chartered Certified
Accountants) has shown.

Of the 2,186 ACCA members surveyed between 16 May and 6 June
2011, only 26% reported increased confidence, down from 28% three
months ago, with 57% saying that economic conditions are either
deteriorating or stagnating, up from 51% only three months ago.

While the rocketing inflation of the first quarter of 2011 was
not repeated in the second three months, a greater proportion of
those surveyed, 54% - up from 51% in the last quarter - reported an
increase in operating costs. This is double the number of
respondents who mentioned inflation two years ago.

The survey shows that rising costs are not just confined to the
fastest-growing economies.

While best performing markets Malaysia and Pakistan are leading
the inflation league table, rising costs were also cited by 45% of
respondents in Western Europe, which has been affected by the
continent’s debt crisis, still sits at the bottom of the
ranking in terms of business confidence and economic optimism.

The survey shows that businesses are becoming increasingly
unable to respond to the inflationary challenge through
cost-cutting.

Around 30% of respondents expect their governments to get
spending decisions right in the medium-term, but 16.5% expect
dangerous levels of over- or under-spending and this group has been
growing every quarter since late 2009.

Access to finance has been tightening globally for the past six
months, and this appears to be the case for both growth capital and
short-term liquidity. This, combined with rising costs, now appears
to be leading to an increase in the number of respondents who fear
that customers (31%) or suppliers (15%) might go out of business,
as well as those reporting problems with late payment (31%).

Despite these worrying trends, confidence figures among finance
professionals have not yet dipped to a situation where they believe
there will be a renewed downturn.

For the past two years, professionals in Africa and the
Asia-Pacific region have been consistently more optimistic than
their colleagues elsewhere about the state of the economic
recovery, and this resulted in high levels of confidence in their
own organisations.

In this survey, however, confidence is surprisingly low in both
regions, with Asia-Pacific recording a net loss of confidence for
the first time in two years. Hong Kong and Malaysia seem to be
particularly affected, while Singapore has bucked the trend by
recording further confidence gains.

While the gloom in the Far East reflects the fallout from the
disaster in Japan, flagging confidence in Africa is mostly a lagged
effect of the slowdown elsewhere. The GECS results show that the
impact of a drop in activity in OECD countries has for the last few
months been trickling down the supply chain, first to the
Asia-Pacific region and then to Africa.

However, unlike the previous quarter, most of the pressure on
access to finance appears to be concentrated on Asia-Pacific and
the Middle East.

Under these challenging conditions, profitable value-added
opportunities of most types have become scarcer and the investment
environment has deteriorated slightly, especially in terms of
financing and business support. Still, investment itself has
remained flat and the outlook for employment and investment in
staff has even improved slightly. This is almost certainly related
to the slow recovery in new orders.

Report author Manos Schizas, senior policy adviser with ACCA,
said: “There are a number of concerns in the latest report,
including that the loss of momentum in Asia and Africa has become
particularly pronounced in the last few months. The limits of
austerity are also being explored in Western Europe and a renewed
tightening of credit and cashflow conditions could be on the cards,
even as new orders and employment are beginning to recover.

“If these new trends - coupled with high inflation and low
investment - persist we would expect to see further instability in
the near future, which will present more challenges for all sectors
professional accountants whether they work in practice or industry
in the second half of 2011.”

Confidence in North America and the
Caribbean converging again

Confidence is still rising in North America, where 37% of
respondents reported confidence gains, but at a much slower pace
than in the last quarter when 45% did. In the Caribbean, ACCA’s
confidence index returned - barely- to positive territory, with 30%
reporting confidence gains (against 31% in Q1).

Faith in the global economy is slightly more pronounced in North
America, where over half of all respondents (54%) believe the
global recovery is on track, against 50% in the Caribbean. 
Confidence levels are converging because respondents in North
America appear to be increasingly affected by problems accessing
finance and cashflow concerns, while in the Caribbean the outlook
for demand and employment is improving.

Another key difference between the two regions which might
explain this convergence is the influence of fiscal policy - in the
Caribbean respondents expect government spending to rise
significantly in the medium term and believe such fiscal policies
will be more or less sustainable, while in North America spending
is expected to fall significantly and yet respondents are more
likely to feel that the adjustment is not sufficiently
ambitious.

Here is ACCA’s full report : href="www2.accaglobal.com/pubs/general/activities/library/economy/tech-ms-gec10.pdf">
www2.accaglobal.com/pubs/general/activities/library/economy/tech-ms-gec10.pdf

For further information, please contact:
Laura Strong, ACCA Newsroom
+44(0)20-7462-8921
href="mailto:Colin.davis@accaglobal.com">lstrong@ruderfinn.co.uk

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