Accountants are anticipating the global economy will return to pre-pandemic levels in the second half of this year, despite worries about inflation, according to a new survey.
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The results revealed that accountants are mostly feeling optimistic about the economic recovery after global confidence plunged in late 2019 and 2020 as the COVID-19 pandemic spread across the world. However, inflation fears and the persistence of the coronavirus, including the virulent Delta variant, are tempering confidence a bit.
Compared with the Q1 survey, inflation expectations have increased significantly in North America, while in Western Europe, the accountants and finance professionals polled anticipate a modest increase in inflation over the next five years.
“To a large extent, the rise in inflation will be temporary, the result of collapsing demand last year, followed by a strong rebound that has resulted in rapid increases in commodity prices and supply shortages in some sectors,” said Michael Taylor, chief economist at ACCA, in a statement. “The rise in inflation can therefore be seen mainly as a welcome reflection of a strong recovery in demand that has resulted in supply shortages and a rebound in commodity prices, both of which are likely to prove temporary. For now, at least, underlying inflationary pressures are generally subdued.”
While survey respondents across various regions of the globe expect a modest increase in inflation over the next five years, a significant minority in North America anticipate much higher inflation. In all regions, at least two-thirds of the survey respondents expect inflation to be slightly or much higher than now.
Global activity indicators, such as orders, showed further improvement in the Q2 survey and are now above the level seen in Q4 2019, right before the pandemic began spreading widely across the world.
Overall, the global economy has now returned to its pre-pandemic size, driven largely by rapid growth in the U.S. and China, the two largest economies, but most other economies around the world still have plenty of ground to recover.
The two “fear” indices in the poll — measured by concern that customers and suppliers may go out of business — both fell in the Q2 survey, indicating that the extreme uncertainty generated by the COVID-19 pandemic has dropped back toward more normal levels.
The index of concern about operating costs grew in the Q2 survey and is now at its highest level since Q3 2019, probably due to inflation worries and labor and supply chain constraints. But concern remains below the level that would indicate a sustained large rise in inflation.
The survey found a very strong recovery underway in North America through the second half of 2021. While confidence remains high, it fell back slightly after an extremely strong bounce in the Q1 survey. The orders and employment indices on the survey both increased and reached their highest level on record. Continued progress with vaccinations, allowing economic conditions to return to normal, and the huge U.S. fiscal stimulus are driving recovery in the region.
Vaccines will be key in maintaining the recovery in the U.S. and helping other regions of the world. “In addition to rapid deployment of effective vaccines, advanced economies have been able to deploy massive fiscal support measures that have maintained household disposable incomes, supported businesses, and prevented large rises in unemployment,” said Raef Lawson, vice president of research and policy at the IMA, in a statement. “Buoyant housing markets have supported consumer spending. This means that as economic conditions move toward normalization, economies are likely to recover very rapidly. In many emerging markets, vaccinations have made little progress, leaving them vulnerable to renewed waves of COVID-19 and variants with consequent restrictions that curtail economic recovery. This pattern seems likely to persist well into 2022.”
The U.S. economy is likely to grow by approximately 7% this year as COVID cases decline and vaccinations continue, according to the ACCA and IMA. Second-quarter GDP growth is likely to be close to the 7% annual rate, helped by a strong rebound in consumer spending. Growth may even strengthen during the second half of the year as employment continues to recover. A return to more normal economic conditions is being helped by the massive fiscal stimulus which by itself may add over three percentage points to GDP this year. Despite the recent spike in inflation, the Federal Reserve is expected to keep monetary policy in place, with interest rates close to zero.
