Global economic growth continues, but at a more modest pace than in mid-2021. ACCA and IMA believe 2022 will see further progress towards a more normal economic environment, but Covid and inflation are the main risks ahead for 2022.
The latest results from a regular global survey of accountants’ and finance professionals’ views about the global economy reveals their economic confidence fell by 12 points in Q4 2021, due to the rapid spread of the Omicron Covid-19 strain.
Conducted during late November and early December 2021 at the start of the outbreak, the ACCA (the Association of Chartered Certified Accountants) and IMA® (Institute of Management Accountants) Global Economic Conditions Survey (GECS) shows that global orders were little changed in Q4, up just one point, signalling that growth will continue at a steady pace early in 2022.
Other key activity indicators remain relatively little changed with the capital expenditure index up one point and employment index down by six points compared to Q3 results.
GECS’ fear indices, which track concern about suppliers and customers going out of business, were also little changed in Q4 but are above pre-pandemic levels.
Michael Taylor, ACCA’s chief economist said: ‘Accountants are often the first to sense the impact of economic activity, informed by the work they do on a daily basis sustaining economies and from the feedback from their clients, especially in the small business sector. GECS reveals their concerns about costs increasing again, seeing this measure double over the course of 2021 indicating growing inflationary pressures in many markets around the world.’
Loreal Jiles, vice president of research and thought leadership at IMA added: ‘We asked our members about the risks they perceived ahead for 2022, and perhaps not surprisingly, the main risk identified was about COVID and new waves of infections with over 70% of respondents saying this was a key risk. Supply shortages came second, the issue already having slowed economic growth in late 2021. Policy tightening, either monetary or fiscal, is of less concern, along with policies to address climate change.’
Looking at specific jurisdictions, confidence fell the most in Western Europe by 28 points, which was the first region to see the rapid spread of Omicron. Confidence increased modestly in two regions – Asia Pacific by five points and North America by 10 points. Only the Middle East recorded a fall in the orders index of six points, with South Asia showing the biggest increase at +8 points.
Explaining the prospects for 2022, Loreal Jiles continued: ‘ACCA and IMA believe that 2022 will see further progress towards a more normal economic environment with global GDP growth of around 4%. Features of this return to normalcy include reduced household savings offsetting withdrawal of COVID fiscal support, easing of supply shortages and continued growth in levels of employment. While Omicron may slow economic growth through the effect on consumer spending and worker absenteeism, the impact on global economic activity should be modest and is likely to be relatively short-lived.’
The biggest economic risk this year is that inflation, already elevated, stays higher for longer, partly because of prolonged supply shortages. Upside surprises to inflation would trigger a greater degree of monetary tightening than is currently discounted by financial markets. The effect would be to slow global economic growth, preventing a return to its pre-pandemic trend.
For emerging markets, the 2022 picture is mixed, says Michael Taylor: ‘Some emerging markets have made progress, while others, such as South Africa and Indonesia, have suffered renewed economic contraction. Overall, their recovery to the pre-pandemic trend rate of growth remains hampered by a lack of fiscal capacity and slow progress with vaccination.’
The Q4 edition of GECS has a special article looking at the opportunities for economic development and growth for Emerging Markets (Ems) - the digital revolution and investing to meet Net Zero carbon emissions. These are two areas where EMs could boost productivity and resume the catch-up of incomes per head with advanced economies.
Michael Taylor concluded: ‘Adoption of digital technology by EMs can drive down costs and stimulate domestic demand and productivity – the driver of long-term economic growth. But there remains a need for basic infrastructure investment in EM countries, notably fast and reliable internet access. The declared goal of achieving Net Zero emissions by 2050 offers investment opportunities that would bring wider economic benefits and help boost potential growth. This investment needs to be concentrated in the energy sector, the source of a large proportion of current EM CO2 emissions. Moreover, as EM economies grow, their energy consumption is set to rise strongly.’
GECS Q4 2021 can be found here: https://www.accaglobal.com/gb/en/professional-insights/global-economics/gecs_q4_2021.html
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