Global business confidence has hit a 12-month high amid continuing growth in the U.S. economy, but uncertainty about the outcome of the U.S. presidential election has dampened business investment, according to a new report.
The Global Economic Conditions Survey (GECS) from the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA) discloses these findings in a third-quarter survey of more than 1,512 finance professionals and 150 chief financial officers. The paper, “Global economic conditions survey report: Q3, 2016,” is reportedly the largest economic survey of these groups worldwide.
The GECS survey finds that confidence among most North American CFOs and accountants improved in the third quarter of 2016. Less than one-third of survey respondents (32 percent) say they’re less confident, down from 36 percent in the second quarter. The positive sentiment, fueled in part by optimism that government spending will increase, makes a further ratcheting up of interest rates by the Federal Reserve more likely, the report’s authors write.
“The recent improvement in confidence, coupled with strong employment growth and high core price pressures, are all reasons to think that the Fed will resume its tightening cycle sooner rather than later,” the report states. “Indeed, although the Fed kept interest rates unchanged at its September meeting, it signaled pretty clearly that a rate hike was likely before the end of this year – most likely in December.”
Andrew Kenningham agrees. He’s a senior international economist at Capital Economics who’s quoted in the report.
“We think interest rates will go up by two percentage points over the next two years or so,” Kenningham says. “That’s a little bit more than the Fed is forecasting and it’s quite a lot more than what the markets are expecting, but we think they will cope.”
One factor could cloud the rosy economic outlook: the 2016 U.S. presidential election. The report attributes a decline in the GECS investment opportunities index — the benchmark fell to its lowest level since the final quarter of 2012 — to uncertainty about the outcome of the November vote.
Most U.S. and Canadian finance chiefs (70 percent) do not anticipate a negative economic impact resulting from the recent U.K. “Brexit” vote to leave the European Union. (Photo: iStock)
“It’s certainly the year in which politics is playing a huge part in economic decision-making,” says IHS Markit Chief Economist Chris Williamson. “The upside is that you can get a decent bounce-back if the political uncertainty lifts. In the U.S. you could see a pickup in growth after the election if policies aren’t changed dramatically in terms of trade and openness.”
Among the report’s highlights:
Nearly six in 10 (59 percent) respondents do not anticipate a negative economic impact resulting from the recent U.K. “Brexit” vote to leave the European Union. The positive sentiment is higher (70 percent) among North American respondents.
Job growth has not kept pace with gains in global confidence: 50 percent of respondents say their business is considering a hiring freeze or staff cuts, compared with just 19 percent who plan to hire more staff. In every region, more businesses plan to reduce staff than to boost recruitment.
Declining income was the biggest concern of companies in Q3 2016. But the proportion citing the dip as a problem has edged down to 43 percent in third quarter from 45 percent in Q2.
Nearly four in 10 (37 percent) respondents expect to benefit from new technologies, but only 14 percent are planning near-term to increase orders of hardware, software or other productivity-enhancing investments.
Just over half (51 percent) of respondents expect an increase in government spending globally, compared with just 33 percent who think that spending will fall. The finance chiefs surveyed peg the forecast to significant declines in fiscal deficits since 2008.
The number of companies concerned about excessive exchange-rate movements dipped to 29 percent in third quarter of 2016, down from 32 percent in Q2. Most major currencies have “remained relatively stable,” and fears about a devaluation of China’s renminbi “have eased.”
Continue on to see additional highlights from the 2016 GECS/ACCA global economic survey.
As this chart shows, global business confidence is now at its highest level since the second quarter of 2016. Also up from Q2: the GECS capital expenditure index. (Click on chart to enlarge.)
Job growth has not kept pace with gains in global confidence: Half of the survey respondents say their business is considering a hiring freeze or staff cuts. (Click on chart to enlarge.)
Declining income was the biggest concern of respondents in the third quarter of 2016, but the percentage citing the decline as a problem has fallen to 43 percent, down from 45 percent in the second quarter. (Click on chart to enlarge.)
Paralleling the increase among Organization for Economic Cooperation and Development (OECD) economies, confidence among finance professionals in non-OECD economies has risen, but Brazil’s continuing recession has contributed to the bloc’s overall weakness. (Click on chart to enlarge.)
Nearly 6 in 10 (59 percent) of respondents do not anticipate a negative economic impact resulting from the recent U.K. “Brexit” vote to leave the European Union. The sentiment is strongest among U.S. and Canadian survey respondents. (Click on chart to enlarge.)