The coronavirus pandemic has prompted global economic confidence among accountants to fall to its lowest levels on record in all regions of the world during the first quarter of the year, according to a new survey from the Association of Chartered Certified Accountants and the Institute of Management Accountants.
The ACCA and IMA’s
Nevertheless, two of the most significant economic regions, Europe and the U.S., are among the worst affected parts of the world. One early measure of the scale of the economic impact is a ten-fold increase to 3.3 million in U.S. jobless claims during the third week of March.
Global equity prices fell approximately 30 percent since the beginning of 2020 and corporate bond yields have jumped sharply, raising the cost of capital for companies. At the same time, commodity prices have fallen sharply, particularly for oil, which have collapsed more than 50 percent since the beginning of this year. Oil exporters are expected to endure a significant impact on their economies as oil revenues collapse.
“In normal circumstances, economic conditions change little in the space of just a few weeks. But these are not normal circumstances,” said IMA vice president of research and policy Raef Lawson in a statement Tuesday. “So, although global confidence and orders both fell significantly in the Q1 survey, they do not convey the true scale of the global economic contraction that is now in progress. What is abundantly clear is that the global economy is heading into a recession, initially at least a severe one.”
In many countries, the scale of government intervention will seem like war-type conditions, with huge state involvement funded mostly by increased borrowing. The fiscal cost will be huge indeed as public sector deficits and debt will soar, while deficits in many countries will leap into the double digits as a percentage of GDP. Global trade is also expected to drop significantly this year, perhaps by as much as 20 percent.
The report predicted that a short-term hit to global GDP will likely be greater than during the 2008-2009 recession, which at its low point recorded global GDP falling at an annual rate of approximately 2.5 percent. However, the 2020 coronavirus recession is much more global in nature with no region of any economic significance spared.
“The global economy is heading into recession as private economic activity collapses due to an effective lockdown in many countries,” said Warner Johnston, head of ACCA USA, in a statement. “If these conditions were to persist for three months or longer, then falls in output approaching 10 percent would be entirely possible. Early data releases, such as U.S. jobless claims and monthly activity surveys in the U.S., Eurozone and U.K. point to plunging levels of economic output. Emerging market economies face additional difficulties as a flight to quality among investors triggers capital outflows.”
Some of the lost economic activity may be recouped, as in delayed purchases of consumer goods such as TVs. But much will be permanently lost, especially in the service sector, including canceled visits to hotels, bars, restaurants and cinemas that never occur.
