Global confidence improved significantly in the third quarter of the year among accountants, despite fears of a prolonged economic recession amid the novel coronavirus pandemic, according to a survey of members of the Association of Chartered Certified Accountants and the Institute of Management Accountants.
The ACCA and IMA’s latest "Global Economic Conditions Survey," released Tuesday, indicated a global recovery through the second half of the year after an unprecedented collapse in economic activity during the first half. However, while there are signs of an economic expansion late this year, the poll also showed increasing expectations that significant economic recovery will be pushed into 2021.
Cagatay Zor is a fintech strategist and the head of the fintech and blockchain business line at Trumore.
Ciao-Wei Chen is an associate professor of accountancy at the Gies College of Business at the University of Illinois Urbana-Champaign.
Max Perkins is head of insurance solutions and COO for Spektrum Labs, an AI-first cyber resilience company that provides agents and tools to reduce the time, cost, and complexity of maintaining provable and effective security and insurability. Spektrum unifies the disconnected domains of cybersecurity, backup, and insurance into one continuous, automated system. By fusing these traditionally disconnected areas, Spektrum enables businesses to prove and maintain continuous resilience—from preventing cyber threats, to instant recovery, to securing financial coverage—all in one place. Spektrum unlocks resilience, automating and verifying the connection between security and insurance, so businesses can recover faster and protect their future.
Prior to joining Spektrum, Max's professional career had been focused on insurance and risk management with particular expertise in intangible boardroom risks such as cyber, privacy, and intellectual property, and the overall impact of technology on business. Max was head of Strategy & Innovation for AXIS Capital's Cyber & Technology underwriting division, where his responsibilities included risk capital management and leadership in launching the world's first securitized 144a Cyber Cat Bond. Prior to joining AXIS in April 2020, he was an insurance broker at Lockton Companies and an underwriter at AIG, CHUBB and Beazley – operating both in the US and London markets.
Activity indicators such as orders, capital spending and employment all rebounded somewhat from the low points seen in the Q2 survey. The global orders balance recovered by nine points in the third quarter, signalling a modest turnaround. Other indicators, such as concern that customers and suppliers could go out of business, also improved a bit from the extreme levels seen in the second quarter.
“The nature and prolonged duration of the COVID-19 shock means that it is likely to result in permanent changes to the structure and potential growth rates of economies,” said IMA vice president of research and policy Raef Lawson in a statement. “Higher private sector savings may be one outcome: households and companies limit consumption and investment respectively as they remain cautious in the face of extreme uncertainty. This suggests that the public sector may have to run significant fiscal deficits for some time in order to support overall demand. For now, at least mounting public sector debt can be sustained since interest rates are exceptionally low.”
Confidence in Q3 recovered strongly to a three-and-a-half-year high as the deep pessimism caused by lockdowns lifted in most regions. North America appeared to be the most optimistic region surveyed, while South Asia had the largest proportion of respondents not anticipating recovery until next year.
In North America, the orders balance recovered significantly in the third quarter, according to the report, but remains at a record low level,
The report found that confidence in the third quarter recovered strongly to a 3 1/2-year high as the deep gloom caused by lockdowns lifted in most regions; North America is the most optimistic, while South Asia has the greatest proportion of respondents not expecting recovery until next year.
In North America, the report found that the order balance recovered significantly in the third quarter but remains at a record low level, with the exception of the previous quarter. In addition, the increase in confidence this quarter was the biggest quarter-to-quarter increase in the history of the survey, reflecting the turnaround in the economic outlook between June and September.
Overall, results for the North American region are consistent with a reasonably strong recovery in the second half of the year. The second quarter saw some record quarterly falls in gross domestic product, including 9.1 percent in the U.S. The current forecast for quarter on quarter GDP in the third quarter is around 7 percent in the U.S.
Expectations of substantial economic recovery have shifted toward later in 2021 over the past three months, including above 50 percent in North America. Responses to this question indicate the realization that the economic damage caused by the pandemic and the restrictions associated with it are likely to persist well into 2021.
The survey indicated a clear regional pattern, with the strongest access to finance seen in the developed markets of North America and Europe, and the weakest in emerging markets. This did not change between the June and September surveys.
The momentum of the recovery is already showing signs of fading, however. “More generally the continued prevalence of the virus means that social distancing rules and other containment measures will persist for the foreseeable future,” said Warner Johnston, head of ACCA USA, in a statement. “This will adversely affect consumer demand in particular areas. Most economic shocks do not result in permanent changes in economic behavior. But the COVID-19 shock is likely to be different: it already has lasted for the first three quarters of 2020 and will do so well into 2021. This, and the nature and scale of the economic impact, means that permanent changes to the structure of economies are inevitable.”
