Confidence in the global economy fell in the third quarter among finance professionals around the world, with two-thirds of them saying the global economy is either stagnating or reversing, according to a new survey.

Raef Lawson

The survey, by the Association of Chartered Certified Accountants and the Institute of Management Accountants, polled 2,550 accountants and other financial professionals.

In the U.S., confidence fell in the third quarter, and small and midsize businesses appear to have been the most affected. The Northeast and South have been the least confident regions of the U.S. for the first and second quarters, and little has changed in the third quarter of 2012. Overall, about 21 percent of U.S. respondents reported confidence gains, while 36 percent reported losses. Among the major markets, only Canadians were more confident.

Thirty-four percent of respondents in the U.S. were relatively upbeat about the state of the global economic recovery, believing it to be on the right track, yet the majority, 61 percent, noted it was stagnating or deteriorating.

Spending in the U.S. was considered by survey respondents to be higher than appropriate, and likely to rise further.

Some respondents felt that efforts to address the two major fiscal challenges, debt sustainability and the fiscal cliff were put on hold prior to the Presidential elections, adding to the uncertainty caused by economic conditions and the elections themselves.

Implementation of the Affordable Care Act (which the Supreme Court upheld earlier this year) was cited by some respondents as having increased costs for some businesses, although others are thriving on the increased demand for software and consultancy services created by the new rules.
Despite falling natural gas prices (assisted by continued investment in alternatives such as shale gas), some businesses have continued to report increasing energy prices.

With the Federal Reserve outlining plans in September to engage in quantitative easing indefinitely, some respondents expressed concerns about the artificially low cost of credit.

“This quarter has seen business confidence fall for all the right reasons,” said ACCA senior economic analyst Manos Schizas, who wrote the report on the survey. “Around the world, and with few exceptions, the fundamentals of the business environment are deteriorating, and businesses are once again having the liquidity problems we thought we’d put behind us.”

She believes there are still many reasons to be optimistic, however. “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,” she said in a statement.

On a global basis, the latest decline in confidence appears to be due mainly to changing business fundamentals—such as demand, access to finance, prompt payment and inflation—as opposed to respondents’ sentiment. Globally, small and midsize businesses appear to be the worst hit.

The survey found continued uncertainty across the Asia-Pacific region, which is still feeling the effects of China’s economic downturn. China was not the source of this pessimism, but rather its neighboring countries, who are suffering not only from the Chinese decline, but the persistently sluggish recovery of Western economies. One theme that emerged from the survey results was the interconnectedness of the global economy.

“The slowdown in Asia, the Eurozone debt crisis and the sluggish U.S. recovery all are feeding into each other and no region is unaffected,” said IMA vice president of research Raef Lawson in a statement. “In fact, the degree to which movements in the GECS [Global Economic Conditions Survey] indices are synchronized between regions is uncanny. But looking at the U.S., there appear to be some significant signs of recovery. Many respondents reported increased housing starts in their regions, and there was also consensus that the auto industry is recovering. That said, it’s worth noting how sensitive the U.S. is to ‘spill overs’ from economic conditions elsewhere—falling demand in both Europe and the Far East and rising prices in the latter.”