Threats to long term economic stability remain as countries recover from the global economic crisis, according to a five year review of finance professionals’ economic insights.
Any recovery may also be limited to just a few “islands of financial stability”, report author Manos Schizas, Senior Economic Analyst at ACCA (the Association of Chartered Certified Accountants), has warned.
This is one of a number of worrying conclusions, based on a five year review of the ACCA/IMA Global Economic Conditions Survey, the largest economic survey of professional accountants in the world.
The two bodies claim that the financial crisis and global recession have now fragmented into multiple unresolved issues – including damaged bank and government balance sheets, unconventional economic policies, political polarisation and geopolitical tensions. These are, by and, large, still present five years on, despite a growing ‘recovery consensus.’
In particular, the review highlights how, since mid-2012, business confidence gains have been much stronger in the financial sector than among the world’s SMEs and large corporates. While conceding the benefits of stronger banks on business investment, it warns of a growing imbalance fuelled primarily by central banks.
Manos Schizas said: “A recovery which is confined to the financial sector is not sustainable and policymakers need to start asking hard questions about what’s really underlying this in terms of consumer spending, business investment and leverage.”
The two bodies have also called on policymakers to take stock of the impact of unconventional monetary policy by OECD countries – particularly the unintended spill-overs into emerging markets.
“Emerging markets in Asia and Africa have had to contend with damaging flows of ‘hot money’ as a result of polices over which they had no choice. Institutionally, they are also much worse equipped to deal with the fallout than the countries that set the flows in motion,” said Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research and policy.
The report, compiled from data created by 40,000 responses over five years, also raises questions about whether inflation really is dead at the global level, noting that it never really fell in Africa and the Middle East, while in Asia-Pacific input prices have rebounded since late 2012. Even the Chinese mainland, which has driven much of the global fall in inflation, saw a rebound from mid-2013 onwards.
Two of the world’s major economies – the EU and China – have driven much of the uncertainty over the past four years, but the ACCA/IMA heath-check is cautiously optimistic.
In the EU, the report finds that, despite mounting government debt, financial contagion has been contained, much of the missing institutional framework in the Eurozone is being built and the banking sector is on the mend. In China, despite repeated ‘doomsday’ warnings, slowing growth has so far remained manageable. However, the country is slowing down and shifting from an investment-driven to a consumption-driven economy, which will present a significant longer- term challenge for Chinese policymakers, and for countries which have tied their economic growth to commodity exports or direct Chinese demand.
The ‘health check’ of the recovery has shown that businesses around the world have been holding back on long-overdue investment for years, while austerity-hit public sectors have also often sacrificed public investment in order to maintain government consumption levels. The result has been a significant loss of productivity which will take years to reverse. ACCA and IMA believe, however, that a rebound in investment has already begun in 2013 and will be the biggest economic story of the next year, shaping industries for years to come. Access to finance has recovered consistently in most regions, businesses are increasingly seeking growth capital and it is mostly structural, rather than cyclical, factor that are holding up business financing.
Manos Schizas said “Finance professionals are at the heart of business globally and have front-row seats to the recovery. Over the last five years they have given us accurate and timely indications of its direction of travel.
“Our five year review demonstrates that policy makers and business leaders around the world must overcome numerous challenges if they are to secure a sustained economic recovery. Fortunately, both businesses and the public sector can continue to rely on finance professionals to help steer them through these challenges.”