The GECS, the largest regular economic survey of more than 1,000 senior accountants and finance professionals from around the world, has consistently captured the true scale of the global recession caused by the coronavirus pandemic, tracking the drop in confidence since the beginning and a new outlook in confidence triggered by the combined effects of vaccines and the fiscal stimulus.
This GECS has recorded the biggest jump in global confidence since the survey began 10 years ago. Between the 2020 Q4 survey conducted last December and the 2021 Q1 survey in March, there has been a significant improvement.
The authors note that the regulatory approval of several highly effective vaccines against COVID-19 and the subsequent introduction of vaccination plans in many countries has put a permanent solution to the health crisis within reach. Activity indicators covering orders, capital spending and employment all increased to some degree in the first quarter of this year – closely mirroring the level of confidence in the last quarter of 2019 before the pandemic struck.
“Having suffered the biggest recession for several decades in 2020, the global economy is on course for a relatively quick rebound,” said Michael Taylor, Chief Economist at ACCA. “The good news is that vaccination plans with continued policy support are on course to lift the global economy out of the COVID abyss this year.”
Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research and policy, noted that the current path to global economic recovery differs from the financial crisis of 2007 to 2009, which resulted in a long period of subdued growth as private sector balance sheets were rebuilt through increased savings.
“This crisis is different as its root cause is health and not economic. For now, global COVID-19 infections are high relative to the vaccination rate, so risks remain significant. But the huge government support provided to both households and companies over the last year leaves both well-placed to resume spending once the health crisis is over. There are likely to be permanent changes in the pattern of spending and other long-term economic consequences of the COVID crisis.” said Lawson.
There are three factors that are heavily influencing economic prospects at present, starting with the rate of vaccinations, which can replace lockdowns to control COVID-19, thereby allowing economic conditions to return to normal. Second are major fiscal stimulus packages, such as in the U.S., which will have positive spill-over effects on other economies. Finally, particularly in advanced economies, significant savings accumulated during periods when spending was severely restricted can be a source of extra demand amid improved economic conditions.
The 2021 Q1 findings also reveal that confidence improved in all regions as did orders, with the exception of Africa. The “fear” indices – concern about customers and suppliers going out of business – showed mixed results in this survey but both remain above long run averages, underlining continued heightened uncertainty. Additionally, near-term cost concerns increased, reflecting higher commodity prices and other costs as the global economy recovers.
Further, the GECS notes that two-thirds of respondents expect higher inflation over the next five years, but there is a marked contrast between regions with North America registering higher inflation expectations than Western Europe.
North America/United States
In North America, the U.S. economy is likely to see economic growth of over 6% this year, in large measure due to fiscal policy, with measures worth around 14% of Gross Domestic Product (GDP) passed since last December. A large proportion of the spending plans in the latest America Rescue Plan are not directly related to COVID relief but are other policies of the new presidential administration. But the funds paid to households are likely to boost growth as they add to accumulated savings of those lower down the income distribution. Total household savings in over and above those that would have occurred anyway are estimated at $1.8 trillion (8% of GDP).
Last year, the U.S. economy shrank by a relatively modest 3.5%, but by the turn of the year, was growing steadily. With a significant portion of the population now vaccinated, the economy was already experiencing a strong upward trajectory even before the latest stimulus.
“Indeed, the U.S. will almost certainly be the first major economy, after China, to regain its pre-pandemic level of output, probably in the second half of this year,” Lawson said. “The risk for U.S. policymakers is that massive fiscal and monetary ease, plus accumulated savings, could boost growth to the extent that overheating and higher inflation becomes a realistic prospect.”
Taylor noted the concern about higher sustained inflation. Amid lockdowns, a collapse of global demand and a drop in commodity prices, inflation plummeted towards zero in many advanced economies and was subdued elsewhere.
“But as the post-pandemic world begins to take shape, there is now a debate about whether inflation is set to move higher, both over the short and medium term,” Taylor said. In the near-term, rising costs will lift inflation rates back towards 2% in many cases.
Fieldwork for the 2021 Q1 survey took place between February 26 and March 11, 2021 and attracted 1,004 responses from ACCA and IMA members, including over 100 CFOs.
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