By Claire West
The fragile global recovery has gone into reverse in the third quarter of 2010, with investment and business confidence suffering a serious setback, according to the latest survey of finance professionals by ACCA (the Association of Chartered Certified Accountants).
Nearly half (49%) of the 1,895 professional accountants surveyed by ACCA believe that conditions are stagnating or deteriorating, and for the first time in the survey’s two years, ACCA’s key economic and business confidence indicators have not pointed towards improving conditions.
Crucially, the report says, the outlook for new orders has weakened in the last three months and more respondents are now reporting concerns about whether their suppliers can continue to be viable. Inflation continued to rise in the last quarter, with 35% of respondents seeing an increase in their operating costs, while slightly more accountants reported that their firms and clients could not get vital finance from banks and other lenders than three months ago.
While ACCA has warned that it is too early to tell whether any particular economies are about to suffer a renewed downturn, it expects that the next quarter’s figures will show whether we are dealing with a temporary ‘pause for breath’ or something much more dangerous. The probability of the latter is reinforced by a sharp deterioration in the survey’s investment indices. ACCA believes that governments’ gradual withdrawal of support for investment over the past nine months is now beginning to tell as demand and financing conditions weaken once again.
Accountants based in Western Europe believe that their governments will reduce spending substantially over the next five years, and those in the Americas are slowly coming to anticipate some measure of austerity as well. On the other hand, ACCA members in Africa and Asia expect public spending to rise substantially. Of those, members in the Asia Pacific region are much more confident that their governments can afford increased levels of spending, while those based in South Asia and Africa expect a tough balancing act ahead.
The picture in the United Kingdom
Confidence in the global economic recovery has taken a hit in the UK, with more than two thirds of the 405 respondents (69%, up from 60%) now expecting either stagnation or further deterioration. Consequently, respondents’ confidence in the prospects of their own organisations fell further than in any quarter since mid-2009, with 37% reporting loss of confidence.
Almost half of the UK sample (49%) reported falling income, while a third were concerned about their customers going out of business. Access to finance was also a commonly cited problem, although its incidence (31%) compared favourably, all things considered, than in much more buoyant economies such as Singapore and Australia. In fact, business conditions appeared to improve in the last quarter across all of ACCA’s indices, with the risk of suppliers going out of business as the only exception.
UK respondents reported that, cost-cutting aside, their businesses were seeking opportunities through expansion into new markets (18%) strengthening supply chain relationships (17%) and, increasingly, by investing in high quality standards (17%). Still, investment in staff and capital continued to fall at a rate faster than that reported in hard-hit Ireland.
One commonly cited reason for this is the fallout from fiscal austerity. Respondents in the UK now expect much more sweeping cuts than they did nine or twelve months ago, with 72% expecting spending to fall sharply over the next five years. Although this is a tighter fiscal outlook than even respondents in Ireland were expecting, UK members appear to have made their peace with spending cuts for the time being. An increasing share of respondents believe that the Government will strike the right balance (40%, up from 28% one year ago), and the risk of under-spending appears to have risen only slightly (40% to 48%). Overall, only one in nine respondents expect dangerous deviations from what they see as the ‘correct’ level of spending (11%; up from 19% one year ago), suggesting that austerity is not as much of a threat to the recovery in the UK as it is elsewhere.
As a result of this cautiously optimistic outlook on government spending, Government approval ratings among respondents in the UK have risen substantially, and crossed into positive territory for the first time since the surveys began. Just over a quarter (27%) of respondents rated government policies as ‘good’ or ‘very good’ (up from 20%), while another 44% rated them as ‘OK’ (up from 34%).
Andrew Leck , Head of ACCA UK, said: “ The latest survey shows that while confidence has significantly reduced among UK finance professionals, they have reconciled themselves to the austerity package developed by the Government, whose approval rating have actually risen. The fact that businesses may be less reliant on government intervention may actually be seen as a positive to come from these tough times.
" Access to finance is still a concern, and there has been a drop in investment in people and equipment. But our members are encouraging clients to seek new business, what will be telling is if our net survey shows that the drop in confidence is a blip - or the start of a double dip recession,” he added.