Accountants predict 2020 will be worst year for economy since World War II
This year is expected to be the worst for the global economy since World War II, according to a new survey by the Association of Chartered Certified Accountants and the Institute of Management Accountants.
The Q2 2020 Global Economic Conditions Survey polled ACCA and IMA members and found that while there are dire predictions for the economy for this year, accountants in North America were more optimistic about an imminent economic recovery from the COVID-19 pandemic than other parts of the globe. The survey also discovered that global confidence recovered slightly from a record low in the first quarter of the year, offering some optimism that recovery is on the horizon during the second half of the year. Nevertheless, many parts of the world still face challenging economic times.
“Confidence in Q2 was a mixed picture and globally there was a modest bounce from the record low in Q1,” said IMA vice president of research and policy Raef Lawson in a statement. “This unusual combination of very weak orders but slightly better confidence can be interpreted as expectations of a turning point — an unprecedented collapse in activity in the first half of the year, to be followed by some degree of recovery in the second half.”
Economic activity indicators on orders, capital spending and employment are at or close to record lows in most regions of the world and the global orders balance fell by 15 points, approximately two times its previous biggest quarterly drop, while other global measures of extreme weakness include plummeting employment index and the rise in concern about customers and suppliers going out of business.
The economic turmoil unleashed by the novel coronavirus pandemic is sending unemployment rates from close to record lows late last year to extreme highs in just a few months. In the U.S., the report noted, the unemployment rate rose to 13.3 percent in May from below 4 percent at the beginning of the year (but improved slightly to 11.1 percent in June, per the U.S Bureau of Labor Statistics last week).
The headwinds against a full economic recovery will probably remain for at least the rest of the year as social distancing dampens consumer spending. Earlier hopes for a sharp V-shaped recovery have given way to expectations of a fairly long period to climb back to the level of output before the pandemic, according to the report. For emerging markets, much will depend on commodity prices along with the strength of the recovery in advanced economies. For many economies, including the United States, it may take until the second half of 2022 at the earliest before the nation can reach the same level of output as at the end of last year.
But despite those worrisome findings, survey respondents in North America were optimistic about a recovery. More than one-third of respondents in North America anticipate a recovery during the current quarter spanning July to September.
The latest edition of the quarterly ACCA IMA GECS survey included special COVID-19-related questions, which generated an overall 50-50 split between those expecting economic recovery in the second half of this year and those not expecting this until 2021.
“The mixed picture on confidence contrasts with the universally gloomy readings on activity indicators such as orders and employment,” said Warner Johnston, head of ACCA USA, in a statement. “Recovery in confidence from Q1 lows can be interpreted as optimism about economic prospects over the second half of the year. In regions such as North America and Europe, the recovery in confidence was modest but in stark contrast with the large fall in orders in both regions.”
The report also notes that the plunge in the GECS employment index reflects a dramatic surge in unemployment, particularly in the U.S., and theorizes that this is a downside risk to sustained recovery. While overall confidence rose slightly from a record low in Q1, hinting at a slightly more optimistic outlook, the picture for 2021 depends on the trajectory of the coronavirus.