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This is not a recovery for everyone, but for significant parts of the world it looks like the real thing. If this new found dynamism persists beyond a couple of quarters it could build its own momentum independent of monetary policy
—Emmanouil Schizas, senior economic analyst, ACCA

GECS Q2 reports the strongest year-on-year improvement in levels of optimism in three years

Both business confidence and optimism about the global economy rose in Q2 2013, building on the significant gains seen in the first quarter. 

Almost half of all respondents - 47% - felt that the state of the economy was improving or about to do so, up from 43% in Q1. This is the highest level of optimism in two years and is supported by a stream of improving economic data and positive news about the global and national economies.

The GECS business confidence index inched higher in Q2, with 26% of respondents reporting increased confidence in the prospects of their organisations. Having warned against unwarranted optimism in the previous quarter, ACCA and IMA believe that business confidence was back in line with improved fundamentals in the second quarter of 2013. 

Respondents to the Q2 survey reported improved access to growth capital reported in Q2 provides further evidence of economic progress. This was evident across regions and in most major ACCA and IMA markets, with the exception of mainland China and Ireland. While many influences have combined to produce this effect, ACCA and IMA singled out monetary stimulus in a number of major economies as the main cause. 

Emmanouil Schizas, senior economic analyst at ACCA and the editor of the GECS survey, commented: 'This is not a recovery for everyone, but for significant parts of the world it looks like the real thing. If this new found dynamism persists beyond a couple of quarters it could build its own momentum independent of monetary policy.'

However, fiscal policy is also feeding into, and responding to, changes in business confidence. Respondents increasingly expect that a number of ‘big spenders’, led by China, Russia, and the US, will tighten their fiscal policies over the next five years. 

Emmanouil Schizas explained:

'These three countries alone represent about 37% of world GDP; while respondents there don’t expect their governments to embrace austerity, even a small medium-term deceleration in government spending is likely to have a significant global impact.

'While business confidence may be strong at the global level, the level of optimism is not shared evenly across the regions. Only North America and Africa appear to be experiencing a genuine and indisputable economic recovery. Concerns about the state of the economic recovery and the health of the banking sector in China impacted on the wider Asia Pacific region. In the Middle East, Western Europe and the Caribbean, respondents felt more optimistic about the recovery than in the previous quarter, but less optimistic about the prospects of their own businesses. On the other hand, in South Asia and Central and Eastern Europe, there are signs of a renewed downturn.'

US business confidence rose in the second quarter of 2013, led by a strong rebound in the manufacturing and engineering sectors, and perceptions of the economy also improved. Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research, comments: 'The US economy is starting to overcome the traumatic political impasses of the last year, although performance is not evenly spread around the country. Increasingly, different US regions are diverging in terms of business confidence, and possibly performance. In terms of confidence, the South and Northeast continued to underperform the rest of the US sample in Q2 2013, completing a full year of divergence.'

In the UK, confidence in the economic recovery rose substantially in the second quarter of 2013, with 43% of respondents declaring themselves optimistic about the future, up from 24% in the first quarter. Emmanouil Schizas continued: 'This view is supported by the IMF upgrading UK growth forecasts earlier this month and the latest ONS statistics showing that the UK economy grew by 0.6% in the last three months to June. But it also builds on many consecutive quarters of steady improvement that haven’t yet been reflected in GDP figures.'

UK business confidence also grew, with 26% of respondents reporting increased confidence in the prospects of their organisations, up from 20% previously. UK businesses’ access to growth capital has been improving, despite some hiccups, throughout the last eighteen months. This has also led businesses to build more human and physical capital, a trend which only accelerated in the latest quarter. 

Despite these positive developments, business opportunities increased only marginally as demand and cash flow conditions tightened both quarter-on-quarter and year-on-year in Q2 2013. 

Emmanouil Schizas explains: 'This quarter’s findings clearly demonstrate how strongly the interplay between fiscal and monetary policy at the global level can influence business conditions on the ground.

'In the second quarter of 2013, monetary stimulus triggered a significant rise in business confidence almost across the range of markets covered here, and in some cases a genuine increase in business dynamism and investment. At the same time, and in the longer-term, fiscal policy is pulling in the opposite direction.'

Emmanouil Schizas concludes: 'For now, the second quarter of 2013 seems likely to prove a decisive turning point for the global economy – the beginning of a real recovery, for some of the global economy at least.'

About GECS

This is the 18th edition of GECS. It had 1,833 responses in the second quarter of 2013.