Gloomiest outlook in Western Europe for 18 months

Escalating global inflation is the biggest challenge to businesses struggling to recover from the economic downturn, according to the latest Global Economic Conditions survey of finance professionals by ACCA (the Association of Chartered Certified Accountants).

The survey of more than 2,300 accountants in March 2011, the largest ever undertaken by ACCA, shows that for the first time more than half (51%) reported problems with rising operating costs, making this the most commonly cited business challenge. Only 31% had reported rising costs as being a problem when the question was asked in the fourth quarter of 2010.

While they reported that there were still businesses opportunities, these increased costs made it more difficult for accountants to spot opportunities for both growth and cost-cutting for the businesses they advise. 

Although the worst problems were reported in Malaysia and Singapore, this trend was not confined to the faster-growing emerging markets but was reported with only marginally lesser intensity in the more sluggish developed economies.

Report author Manos Schizas, senior policy adviser with ACCA, said: “The huge rise in inflation has been the most worrying development to emerge in our latest survey. More than half of the respondents reported problems with rising operating costs, which will hinder their ability to look for new opportunities at the time when businesses desperately need to fill the order books.

“The number of finance professionals worried about inflation will also be of concern to governments which have a range of measures in place to control rising prices. These measures were designed to ensure that businesses do not fail because they cannot afford the raw materials or expertise,” he said. 

Responses suggest that the global economic recovery picked up speed again in early 2011, after briefly going into reverse at the end of 2010 - but that conditions remain fragile. 

Accountants reported that both demand for goods and services and cash flow conditions have continued to improve around the world. While this has generally lead to a more stable outlook for employment and investment in developed countries, accountants in the developing world reported slightly less investment in staff and more layoffs as businesses come to terms with the weaker-than-expected recovery.

In the developing world, members saw an opportunity in exports, relying mostly on strong supply chain relationships, investments in quality, and innovation. Accountants in developed markets, however, reported fewer opportunities in all of these areas compared to previous quarters –while still anticipating a rise in new orders for their businesses.

With the global economic recovery still far from assured and Europe still in the throes of a financial crisis, members were asked how they thought government spending in their countries would change in the mid-term.

Although western countries were still expected to embrace austerity, respondents around the world agreed that their Governments were more likely to increase spending in order to support the recovery.

Overall, members around the world feel that fiscal policy is now more of a balancing act than before, especially in fast-growing markets where rising inflation has reduced the range of options available to policymakers. Almost one in six respondents expect their government to get spending dangerously wrong over the next five years.

The view from Western Europe:
Late 2010 was a difficult time for respondents in Western Europe as the sovereign debt crisis claimed another victim. Since then, both respondents’ confidence and their overall assessment of global economic conditions have improved without making up for much lost ground. With only 21% reporting confidence gains and 29% believing economic conditions are improving or about to improve, Western Europe hasn’t been this gloomy in at least 18 months.

For the time being cashflow conditions are stable and business insolvencies are down, but with demand and access to finance tightening, this may not last. Moreover, a spectacular rise in operating costs now means that this is the most commonly cited business problem even in this region (43%).

The outlook for capital spending has improved only marginally, while that for employment has remained unchanged, with increases in both job creation and layoffs cancelling each other out.

As the effects of austerity continue to be felt across Western Europe, a small but growing number are expecting governments to change course in the face of a renewed downturn. So far, however, only 12% of respondents expect truly dangerous levels of fiscal retrenchment – a marginal rise from the last reading in Q3 2010.

For further information, please contact:

Colin Davis, ACCA Newsroom
+44 (0)20 7059 5738
+44 (0)7720 347713
colin.davis@accaglobal.com

Notes to Editors

1. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

Cecile Bonino
Public Affairs and Media Relations Officer-EU ACCA
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