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The latest Global Economic Conditions Survey (GECS) released from ACCA (the Association of Chartered Certified Accountants)andIMA^® (Institute of Management Accountants)found that global confidence improved significantly during the third quarter of 2020 amid persistent fears of a prolonged economic recession due to the worldwide coronavirus pandemic.

The GECS is one of the most comprehensive surveys of its kind, both for its number of respondents and for the range of economic variables it monitors. Accountants and finance professionals from around the world share their views on the macro-economic environment as they see it. Within themed countries and regions, the GECS is regarded as a good predictor of GDP growth. Its correlations with the VIX, or “fear,” index is well-established. It has therefore become a trusted source for gauging the overall performance of the global economy.The full report is available here and at https://www.imanet.org/insights-and-trends/global-economic-conditions-survey?ssopc=1.

The Q3 2020 survey, which features specific COVID-19-related questions, points to global recovery through the second half of 2020 after the unprecedented collapse in activity during the first half. There is a big jump in global confidence, which is now at a three-and-a-half-year high. This provides some optimism that some recovery is in prospect in the second half of the year, notwithstanding the collapse in activity through the first half. In the latest survey there was also a slight reduction in measured concern that customers and suppliers may go out of business.

Outlook for emerging markets

The outlook for emerging markets remains especially challenging. International trade has not fallen as much as feared at the outbreak of the crisis but is still down by almost 20 percent so far this year. Revenues from overseas visitors and remittances sent by workers overseas still have significant negative influences on many emerging market economies.The survey reveals increasing expectations that economic recovery will be pushed into 2021.

Outlook for developed markets

Having fallen the most in Q2, the orders indices in North America and Western Europe recovered by the largest margin in Q3. The lifting of lockdowns in these regions, especially from July onwards, has elevated their economies – the orders balance reflects this and points to continued recovery. There is little variation in levels across regions, with South Asia a relatively weak outlier. Not surprisingly, North America is the most optimistic region, while South Asia has the greatest proportion of respondents not expecting recovery until next year.Confidence in Asia-Pacific showed further modest improvement in Q3 and the level now stands at a two-and-a-half-year high. Most activity indicators also increased in the latest survey, but the message is not one of especially strong growth.The Middle East region enjoyed a strong rebound in both confidence and orders in the Q3 survey, having been one of the weakest regions in the previous survey. Oil prices have become stable after extreme volatility caused by excess supply earlier in the year. In addition, economic recovery in China is supporting oil demand.

Activity indicators covering orders, capital spending and employment have all bounced back to some degree from low points reached in the second quarter survey. The global orders balance recovered by nine points in the third quarter, signalling a modest turnround. Other measures, including concern that customers and suppliers may go out of business also improved slightly from extreme levels last time. When it comes to access to finance, the pattern in the latest survey is the same as in June; more generous government support and guarantees mean that firms in advanced regions such as North America and Western Europe have better access to finance than those in emerging markets.

“The nature and prolonged duration of the COVID-19 shock means that it is likely to result in permanent changes to the structure and potential growth rates of economies,” said Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research and policy. “Higher private sector savings may be one outcome: households and companies limit consumption and investments respectively as they remain cautious in the face of extreme uncertainty. This suggests that the public sector may have to run significant fiscal deficits for some time in order to support overall demand. For now, at least mounting public sector debt can be sustained since interest rates are exceptionally low.”     

“The Global Economic Conditions Survey (GECS) shows an improvement in optimism and activity following the previous quarter which had key indicators plunging to record lows,”said Hanadi Khalife, Senior Director MEA & India operations at IMA, “Economic recovery is now underway as lockdowns are being lifted, with the third quarter expected to show some revitalized growth rates. Confidence assessment measures reveal that enterprise confidence has changed for the better compared with its level three months ago. Back in June, many economies were emerging from lockdowns and confidence was very fragile. To a large extent, the strength of this recovery reflects the significant income support provided by governments to households during lockdowns: this maintained spending power despite collapsing economic activity.”

Looking ahead to 2021, Michael Taylor, ACCA’s chief economist concludes: ‘The Q3 recovery has been driven mainly by the consumer, where the rebound in retail sales has been especially strong. But our view is that the consumer will lose momentum in coming months and into 2021.Increasing, COVID infections in some countries and continued social distancing measures everywhere will undermine consumer confidence and spending. In addition, fiscal support is being scaled back in many cases, contributing to a rise in unemployment. World GDP is not likely to regain its pre-crisis level until at least the second half of 2022.

‘The nature and duration of the COVID-19 economic shock is such that it is likely to result in permanent changes to the structure of economies and to the trend rate of economic growth. Households and companies may well increase their savings rates, hampering private sector demand. This means that the public sector may have to run significant fiscal deficits for the foreseeable future in order to support overall demand.’

The nature and prolonged duration of the COVID-19 shock means that it is likely to result in permanent changes to the structure and potential growth rates of economies. Higher private sector savings may be one outcome: households and companies limit consumption and investment respectively as they remain cautious in the face of extreme uncertainty. This suggests that the public sector may have to run significant fiscal deficits for some time in order to support overall demand.

Global Economic Conditions Survey Q3 2020 report attracted responses from1,067ACCA and IMA members around the world, including more than100CFOs. The COVID-19 questions elicited 789 responses.