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The underlying reason for the UK’s loss of capacity may instead be that business opportunities dwindled in Q1, falling to levels comparable to a year ago. That said, the medium-term trend in business opportunities is flat, so capacity should stabilise
—Mano Schizas, senior economic analyst, ACCA

UK business confidence grows for third consecutive quarter

The first quarter of 2013 saw a marked improvement in global business confidence, according to the Global Economic Conditions Survey (GECS) of almost 2,000 senior finance professionals. The survey is carried out by ACCA (the Association of Chartered Certified Accountants) in partnership with the US-based Institute of Management Accountants (IMA).

Almost a quarter (24 per cent) of respondents reported increased business confidence, a rise of five per cent from late 2012. Those reporting a loss of confidence fell to 37 per cent, down from 43 per cent in the previous quarter. The increase in business confidence has been boosted by rising expectations of a global recovery with 43 per cent of respondents believing that the economy was improving or is about to do so, an increase of 13 percentage points since the previous quarter. 

At the global level, the Middle East reported the highest increases in both business confidence and levels of optimism regarding the global recovery. Africa was the only region to report a fall in confidence in early 2013, due in part to a high number of struggling small and medium-sized enterprises and non-profit organisations who reported mounting pressures on cash-flow and new orders alongside dwindling business opportunities.

Emmanouil Schizas, senior economic analyst at ACCA, cautioned: 'At the global level, the confidence gains recorded in Q1 2013 are much larger than would be expected given improved economic fundamentals and are likely to dissipate. In Europe, the fallout from the Cyprus bail-in will also likely result in a loss of confidence in Q2 – so while the Q1 results are promising, they are likely to be short-lived.' 

Global business fundamentals showed genuine signs of improvement in early 2013, with respondents flagging reduced pressures on cash-flow, new orders and improved access to growth capital, which contributed to an overall improvement in business conditions. 

Schizas continued: 'Although respondents report a steady improvement in term of opportunities for investment, there is no corresponding proliferation of genuine value-added business opportunities – suggesting that too much money may soon be chasing too few opportunities at the global level.'

Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research, said: 'The global confidence gains recorded in Q1 2013 are much larger than what would be expected given the conditions on the ground. It seems that in many markets confidence is being fuelled by an expectation of economic improvement in the future, but it’s not clear, when looking at the fundamentals, where this is meant to come from. As a result, we believe this surge in confidence is likely to be short-lived.'

In the UK, business confidence rose marginally, continuing the upward trend which began in the second half of 2012. UK respondents reported improvements in cashflow and new orders, although these at lower levels than in the early part of last year. However, UK business capacity, which includes capital spending and investment, has fallen significantly in the first quarter, suggesting that the overall trend is not encouraging. 

Manos Schizas suggests: 'The underlying reason for the UK’s loss of capacity may instead be that business opportunities dwindled in Q1, falling to levels comparable to a year ago. That said, the medium-term trend in business opportunities is flat, so capacity should stabilise.'

The survey found that, within the UK, business confidence in Scotland powered ahead of the rest of the UK. It has been on the rise since mid-2012, and confidence gains have been significantly stronger here than in the rest of the UK. 

Global Economic Conditions: Research Methodology

The Global Economic Conditions Survey, carried out jointly by ACCA and IMA is the largest regular economic survey of accountants in the world, both in terms of the number of respondents and in terms of the numbers and scope of economic variables it monitors. Its main indices are good predictors of GDP and daily trend deviations correlate well with the VIX ‘fear’ index.