ACCA and IMA see economic confidence plummeting in Q3

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Global economic confidence among accountants declined sharply in the third quarter, reaching its lowest level since early 2016, according to a survey released Thursday by the Association of Chartered Certified Accountants and the Institute of Management Accountants.

The ACCA and the IMA surveyed 925 of their members around the world, including 89 CFOs. The report predicted global growth will slow gradually over the next several years largely due to weaknesses in the U.S. and China.

In both North America and the Asia Pacific region, confidence plummeted over 20 points. In the Asia Pacific, confidence was at its lowest since the beginning of 2016, while in North America, it was the lowest since the start of 2017.

Even though the U.S. economy has performed strongly since the last presidential election, confidence in the U.S. is now at its lowest level since the first quarter of 2016.

“There are questions around how long this period of strong growth will last,” said ACCA USA head Warner Johnson in a statement. “The last time the economy was in recession – officially defined as two consecutive quarters of negative growth – was in Q2 2009; the current period of expansion is the second longest since the Second World War.”

Economic confidence held up best in South Asia and Western Europe with declines of 2 and 6 percentage points respectively. Confidence in the Middle East and Africa also dropped significantly by 35 and 22 points, respectively. Globally, 45 percent of businesses have considered different responses to changing economic circumstances, including cutting staff or freezing new hiring. Only 18 percent of businesses are considering an increase in staffing levels, a drop by 2 percent in the past quarter.

The stimulating impact of tax cuts have boosted corporate profits, but the report predicts investment will wear off over the course of the next few quarters. Interest rates are likely to remain relatively low in the years ahead, and any future hikes will depend on the economy’s continued strong performance. “Ten years after the collapse of Lehman Brothers, which marked the start of the deepest global downturn since the great depression, the risk of something similar occurring in the near future appears low,” said IMA vice president of research and policy Raef Lawson in a statement. “There has been a sharp reduction in the amount of risky lending, including the sub-prime mortgages that triggered the crisis 10 years ago. The Dodd-Frank Act in the US and the creation of the Prudential Regulation Authority in the UK, as well as the Basel III regulations that require banks to hold more capital, have made banking sectors across the developed world much safer. And while there are worries about property prices rising too quickly in some countries, these concerns are mostly focused on relatively small economies such as Hong Kong and Australia.”

Even though the trade war with China will cause some disruption for U.S. companies operating in that country, the macroeconomic impact is likely to be modest–as long as it doesn’t escalate drastically. Gross Domestic Product growth reached 4.2 percent quarter on quarter in Q2 2018, the fastest GDP growth since the third quarter of 2014.

Although the U.S. employment index has plunged, it remains positive, reflecting the continued health of the U.S. jobs market. The U.S. unemployment rate is at its lowest level since 1969, and the economy continues to generate about 200,000 new jobs per month. Wages grew 2.9 percent in annual terms in August, the fastest rate of growth in nine years. The government spending component fell again in Q3 and is now well below the high it reached in the first quarter of 2018. The tax cuts of 2017 have widened the U.S. fiscal deficit that will need to be closed, perhaps with spending cuts to Medicare, according to the report.

However, the survey pointed to other risks in other parts of the world economy, with the biggest in China (which is experiencing a signficant rise in private sector debt) and Italy (which is seeing a large increase in government debt).

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Economy Tax reform Tax cuts ACCA IMA