Accountants globally are expressing more economic optimism in the first quarter of the year, according to a new survey, but rising inflation, supply chain disruptions and the war in Ukraine are pointing to risks ahead.
The quarterly
However, there are plenty of warning signs as well. The GECS survey was conducted between Feb. 14 and March 1, 2022, when the invasion of Ukraine was just beginning. The two “fear” indices on the survey, measured by concern that customers and suppliers may go out of business, were little changed in the quarterly survey, down by two points and one point respectively. Both indices have sharply declined from the extreme levels seen in 2020 but are still above pre-pandemic levels. But economic conditions are expected to continue to shift as the full impact of the Russia-Ukraine conflict is felt this spring.
“Given the fast-moving and unpredictable nature of the war in Ukraine, it’s important to note that the survey may not fully capture the likely effects of the invasion,” said ACCA chief economist Michael Taylor in a statement. “But we have a picture of the immediate economic costs of the war in Ukraine and the main conclusion is that the rise in commodity prices, especially for oil, natural gas, and wheat, will push inflation even higher in most economies, further squeezing real incomes and slowing economic growth.”
On a regional basis, North America and Asia-Pacific both recorded dips in confidence in the first quarter, reversing the gains made in the Q4 survey. However, all the other regions showed modest increases in confidence, with the biggest gain in the Middle East. Much of the regional increase in confidence in Q1 may reflect the waning of the “omicron effect,” when at the time of the last survey, the rapid spread but uncertain virulence of the omicron variant may have weighed on confidence in several regions. That effect has now been replaced with another potentially confidence-shaking event in Ukraine.
Compared with previous forecasts, global growth may be reduced by as much as one percentage point this year, to around 3.25%.
“The economic consequences of Russia’s invasion of Ukraine are yet to fully emerge,” Taylor stated. “Central banks in advanced economies face a difficult judgment call that could result either in over-tight policy, causing recession or too easy policy embedding inflation and inflation expectations. Policies need to be thought through and stress-tested very carefully in the days, weeks and months ahead.”
Meanwhile, supply chain disruptions and inflation are continuing to cause worries for many accountants. “We again asked respondents to name their two biggest economic risks — 51% said supply chain disruption and 50% said renewed COVID restrictions,” said Loreal Jiles, vice president of research and thought leadership at the IMA, in a statement. “Compared with the Q4 survey, there was an increase in rising interest rates as a risk, up to 40% from 26%. We expect U.S. interest rates to rise steadily this year, and this may result in a tightening of global financial conditions.”
The war in Ukraine and the lingering pandemic, exacerbated by the fast-spreading BA.2 subvariant of Omicron and surging inflation, could lead to policy mistakes.
“Removing the exceptional policy ease introduced to mitigate the effects of the pandemic was always going to be tricky,” Jiles stated. “Over the last year, supply shortages and now the Russia-Ukraine war have resulted in a stagflation scenario reminiscent of the 1970s, which was a time of weak economic growth combined with high rates of inflation.”
