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Home » Opinion » Foreign Views
Accountants see rise in confidence
January 15, 2010, Friday
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Print Edition
Print Edition
THE fourth ACCA Global Economic Conditions Survey was carried out between November 9 and 30, 2009, and attracted 1,702 responses from ACCA members in 99 jurisdictions around the world.
ACCA is the Association of Chartered Certified Accountants. The findings reveal a surge in confidence and optimism as the global economy inches ever closer to recovery.
Governments can claim some of the credit for this new-found optimism. The decisive action taken by governments in late 2008 and early 2009 has succeeded in restoring some degree of stability to the global economy, but the possible length of the downturn has since been severely underestimated.
As the true legacy of the credit crunch - sluggish growth, credit shortages and mounting government liabilities - becomes ever more apparent, our members are revising their estimates. One in nine of the professionals surveyed now think that the downturn will last for at least another three years or more.
This hard core of skeptics is not concentrated only in hard-hit developed nations, as one might expect. Instead it is sustained, across sectors and geographies, by a number of global risk factors which do not appear to be receding.
First, investment, especially in human resources, is still falling. The percentage of respondents whose organizations or clients are making pre-emptive job cuts despite stable or rising revenues has risen to 17 percent, up from 14 percent in August.
Finally, expectations of medium-term government spending, a key predictor of economic optimism, have not changed dramatically since August. Although most respondents (70 percent) expected their governments to spend more or less wisely over the next five years, a significant minority (13 percent) expect dangerous levels of over- or under-spending which will serve to prolong the recovery.
This ratio has fallen since August (when it was 16 percent), but is still uncomfortably high, especially in South Asia, the Americas and Central and Eastern Europe.
Encouragingly, the signs of market failure are receding. In the year between Q3 2008 and Q3 2009, 69 percent of all respondents who saw an increasing number of profitable opportunities emerge also saw the supply of finance tightening.
In the last quarter of 2009, this ratio fell by more than half (to 32 percent), suggesting that suppliers of finance are once again able to exercise a degree of judgment.
Furthermore, not all regions are equally affected. Respondents in the Asia-Pacific region are in fact reporting a net increase in the amount of capital available to their organizations, despite a net fall in the amount of profitable investment opportunities - a development, driven by aggressive monetary policy, that carries its own risks for the region.
It is clear by now that investment is responding much more slowly to improving economic conditions than perceptions have done. No sector or geography is unaffected by falling investment, or even approaching recovery in this regard.
From a regional perspective, investment appears to be most subdued in Western Europe, Africa and the Americas, while large organizations, especially in the public sector, are scaling back their investment most decisively.
On the other hand, the appetite for investment appears to be returning fastest in Asia and among smaller businesses. Regardless of region or sector, organizations are cutting their investment in staff faster than their investment in capital; the only exception are public sector bodies.
A more detailed study of the factors affecting investment reveals that the primary cause for falling capital investment is an emphasis on cost-cutting and a shortage of finance.
Businesses will also rein in capital spending if they are concerned about the survival of key suppliers or if new orders are not forthcoming.
Falling investment in staff, on the other hand, is primarily a response to low levels of demand as well as cash-flow risks, especially customer failures. It is also affected by a focus on cost-cutting, rising operating costs and falling availability of capital.
Finally, large corporates are, all other things being equal, more likely to slash investment in staff than any other employers.
Perhaps more important is the question of who is investing. It appears that most of the capital investment carried out originates with businesses looking to trade abroad or enter new markets, often because they are pessimistic about the prospects of their established markets or domestic economies. These new capital investments depend to some extent on government support.
On the other hand, most of the new investment in staff is driven by businesses looking to improve quality standards as a competitive strategy, and it is more of a priority in fiscally unstable markets.
While this may appear surprising, by investing in their staff now businesses in these countries could be taking advantage of falling pay expectations or hedging against future inflation.
(Reproduced with permission from the Shanghai office of the ACCA. Shanghai Daily condensed the ACCA report.)
ACCA is the Association of Chartered Certified Accountants. The findings reveal a surge in confidence and optimism as the global economy inches ever closer to recovery.
Governments can claim some of the credit for this new-found optimism. The decisive action taken by governments in late 2008 and early 2009 has succeeded in restoring some degree of stability to the global economy, but the possible length of the downturn has since been severely underestimated.
As the true legacy of the credit crunch - sluggish growth, credit shortages and mounting government liabilities - becomes ever more apparent, our members are revising their estimates. One in nine of the professionals surveyed now think that the downturn will last for at least another three years or more.
This hard core of skeptics is not concentrated only in hard-hit developed nations, as one might expect. Instead it is sustained, across sectors and geographies, by a number of global risk factors which do not appear to be receding.
First, investment, especially in human resources, is still falling. The percentage of respondents whose organizations or clients are making pre-emptive job cuts despite stable or rising revenues has risen to 17 percent, up from 14 percent in August.
Finally, expectations of medium-term government spending, a key predictor of economic optimism, have not changed dramatically since August. Although most respondents (70 percent) expected their governments to spend more or less wisely over the next five years, a significant minority (13 percent) expect dangerous levels of over- or under-spending which will serve to prolong the recovery.
This ratio has fallen since August (when it was 16 percent), but is still uncomfortably high, especially in South Asia, the Americas and Central and Eastern Europe.
Encouragingly, the signs of market failure are receding. In the year between Q3 2008 and Q3 2009, 69 percent of all respondents who saw an increasing number of profitable opportunities emerge also saw the supply of finance tightening.
In the last quarter of 2009, this ratio fell by more than half (to 32 percent), suggesting that suppliers of finance are once again able to exercise a degree of judgment.
Furthermore, not all regions are equally affected. Respondents in the Asia-Pacific region are in fact reporting a net increase in the amount of capital available to their organizations, despite a net fall in the amount of profitable investment opportunities - a development, driven by aggressive monetary policy, that carries its own risks for the region.
It is clear by now that investment is responding much more slowly to improving economic conditions than perceptions have done. No sector or geography is unaffected by falling investment, or even approaching recovery in this regard.
From a regional perspective, investment appears to be most subdued in Western Europe, Africa and the Americas, while large organizations, especially in the public sector, are scaling back their investment most decisively.
On the other hand, the appetite for investment appears to be returning fastest in Asia and among smaller businesses. Regardless of region or sector, organizations are cutting their investment in staff faster than their investment in capital; the only exception are public sector bodies.
A more detailed study of the factors affecting investment reveals that the primary cause for falling capital investment is an emphasis on cost-cutting and a shortage of finance.
Businesses will also rein in capital spending if they are concerned about the survival of key suppliers or if new orders are not forthcoming.
Falling investment in staff, on the other hand, is primarily a response to low levels of demand as well as cash-flow risks, especially customer failures. It is also affected by a focus on cost-cutting, rising operating costs and falling availability of capital.
Finally, large corporates are, all other things being equal, more likely to slash investment in staff than any other employers.
Perhaps more important is the question of who is investing. It appears that most of the capital investment carried out originates with businesses looking to trade abroad or enter new markets, often because they are pessimistic about the prospects of their established markets or domestic economies. These new capital investments depend to some extent on government support.
On the other hand, most of the new investment in staff is driven by businesses looking to improve quality standards as a competitive strategy, and it is more of a priority in fiscally unstable markets.
While this may appear surprising, by investing in their staff now businesses in these countries could be taking advantage of falling pay expectations or hedging against future inflation.
(Reproduced with permission from the Shanghai office of the ACCA. Shanghai Daily condensed the ACCA report.)
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