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.
Ajay Wanchoo, managing director – tax at KPMG LLP, leads transformation initiatives with a global team of specialist engineers and business experts and contractors, who provide deep technical analysis of client IT investments and develop client-facing solutions in the cloud leveraging artificial intelligence and other emerging technologies.
Joshua Ronen is a professor of accounting at New York University Stern School of Business and co-editor of the "Journal of Law, Finance, and Accounting." Professor Ronen teaches courses in managerial accounting, financial accounting, advanced topics in financial accounting, and financial statements analysis. Ronen has been with NYU Stern for nearly 45 years. His primary research areas include capital markets, disclosure, earning management, economic impact of accounting rules and regulations, financial reporting, legal liability of firms, transfer pricing, agency theory, corporate governance, and fair valuation. Ronen has written numerous books including "Accounting and Financial Globalization," "Off-Balance Sheet Activities," "Entrepreneurship," "Smoothing Income Numbers: Objectives, Means and Implications," and "Earnings Management." He has been published in many academic journals including and publications including The New York Times, The Accounting Review, Journal of Accounting Research, Journal of Accounting, Auditing and Finance, Abacus, Management Science, Journal of Public Economics, Journal of Organizational Behavior and Human Performance, Stanford Journal of Law, Business, and Finance, and Journal of Financial Markets. In addition to his work at NYU Stern, Ronen has lectured at University of Canterbury, Tel-Aviv University, Federal University of Rio de Janeiro, National University of Mexico, University of Toronto, University of Chicago, Hebrew University, and London School of Economics among many others. He has also been a consultant for numerous organizations, including especially law firms as expert witness in the area of securities litigation. His suggestions for reform in the accounting profession have received critical acclaim by legislators and in the media. Ronen received his Bachelor of Arts in Economics and Accounting at Hebrew University in Israel, and his Doctor of Philosophy from Stanford University. Professor Ronen is also a licensed CPA in Israel.
David Silberman is senior advisor at the Financial Health Network and former associate director, research, markets and regulations at the Consumer Financial Protection Bureau.
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.”
