Finance professionals felt a little more upbeat about the world economy in the first quarter of the year, according to a survey from the Association of Chartered Certified Accountants and the Institute of Management Accountants.
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The two "fear'' indices improved over the fourth quarter of last year, reflecting a lower level of concern among the respondents that their customers and suppliers may go out of business. Worries about suppliers have declined to the lowest level since 2020. While new orders have gone flat in the first quarter, the survey indicated improvements in both employment and capital expenditures.
"The global economy entered 2023 with more momentum than many had expected," said Jamie Lyon, head of skills, sectors and technology at ACCA, in a statement. "Confidence has risen as business comes to terms with the fallout from the Russian-Ukraine war. The economic climate has been helped by a faster-than-expected relaxation of China's zero-COVID policies, and more normal energy prices in Europe, that should help to reduce headline inflation and may bring about a pause in central banks' tightening of monetary policy, but there are still some downside risks that may prevail."
While the level of global new orders has flatlined, one factor sustaining the rebound in confidence could be the decline in the level of concern about increased costs. Cost pressures appear to have peaked, but they're still far above the median recorded over the survey's history. Commodity prices remain subdued, even though Europe has seen natural gas prices return to levels before Russia invaded Ukraine.
"Looking at the change in the GECS Confidence Indices over the quarter, what stands out is the 30-point improvement in confidence in Western Europe," said Loreal Jiles, vice president of research and thought leadership at IMA, in a press release. "However, this good news was not limited to Europe; Asia-Pacific, North America and South Asia also registered an improvement. This was a broad-based pick-up, with the exception of Africa and the Middle East."
Global confidence has edged up for the third quarter in a row, not only because cost concerns have eased, but also as worries about accessing finance and securing prompt payment have dropped.
Reports of problems with prompt payments fell to the second lowest level in the survey's history. The improved macroeconomic conditions seem to have encouraged companies to revisit their capex and hiring plans. When asked how they planned to respond to the changing economic environment, the net balance of companies that plan to increase investment in capital and staff rose in Q1, as did the net balance of companies planning to increase job creation.
That finding comes despite the rapid tightening of global monetary policy by the world's central banks. The past 12 months have seen the most aggressive simultaneous tightening of policy in more than 40 years in terms of pace, scale and breadth. While that hasn't yet had a material impact on the survey takers' responses about financing conditions and corporate capex and hiring intentions, monetary policy can take a while to work through the broader economy and could become a problem later this year.
The report noted that recent data supports the idea that the U.S. economy may avoid a recession in 2023. "Service sector activity continues to expand at a decent clip, with the latest non-manufacturing Institute Supply Management survey index still above 55," said the report. "Many of the market indicators remain strong too. The payrolls data has surprised positively for almost a year now, and aggregate worker incomes are still growing at a robust quarterly annual pace of 6.5%. The lack of layoffs in the construction sector, which over the past year has faced one of the sharpest downturns in spending in U.S. post-war history, has been a surprise."
