ACCA spotlight Why the

A slow journey back to global economic growth

ACCA’s chief economist Michael Taylor gives PQ readers an insight into the latest view of the global economy from the perspective of accountants

As a profession, accountants hold pivotal roles in the management and direction of every type of organisation – from global corporations through to governments and small businesses. And it’s because of this that our members can detect the first signs of economic change.

With members covering 178 countries and regions, they’re in a unique position to take a temperature-check of economic activity on a global scale. This is what we do each quarter, joining forces with IMA to ask our members questions about their economic confidence and fears. These are then published in our Global Economic Conditions Survey* (GECS).

Omicron has clearly caused chaos in many regions with our latest survey for Q4 2021 finding that global confidence dropped by 12 points at the end of 2021.

Western Europe, the region which experienced the fastest spread of the outbreak, reported the biggest drop of 28 points. Only North America and Asia-Pacific recorded improved confidence and this increase was modest in both regions. Confidence also fell in South Asia and Africa, highlighting the ongoing challenges faced by emerging markets.

Impact of Covid-19 and inflationary pressure Our analysis shows that Omicron’s impact on the road to economic recovery may be something of a bump in the road, with its impact likely to be modest and short lived. Global orders were relatively unchanged in the last quarter of 2021 and there was little movement in the ‘fear indices’ which measure concerns of suppliers and customers going out of business.

However, cost increases and supply shortages are more troubling, with inflationary pressures being experienced in many markets globally. Concerns over costs doubled over the course of the last year and inflation is likely to be the biggest economic risk in 2022. This could potentially lead to a greater degree of monetary tightening than anticipated, which would in turn slow growth and prevent a return to the prepandemic trends.

Looking at all the indicators, there is optimism about progress towards a more normal economic environment, and that we should see global GDP growth of around 4% in 2022.

Emerging market opportunities A special focus in the latest issue of our GECS is about the potential for growth in emerging markets, for advancing digital technology and the growing demand for clean energy.

Adoption of digital technology can drive down costs, increase productivity and stimulate demand. The advantage emerging markets have is their ability to bypass the ‘bricks and mortar’ stage of business development, instead beginning with digital, much as we’ve seen in the banking and financial services sector. Since 2017, digital revenue has been growing in emerging countries at an average annual pace of 26 per cent, compared with 11 per cent in the developed ones.

Climate change While climate change poses obvious risks, there are also opportunities ahead. Energy consumption is expected to rise three times faster in emerging markets and significant investment will be needed to both deliver this generation demand while also meeting the net zero target by 2050.

Much of the investment needed is likely to come from private international sources with a major focus on investing in renewables. While wind and solar power have low electricity supply costs once established, they require large upfront capital cost. This increase and transition in energy generation also has the potential to create new jobs, as the appropriate domestic infrastructure and regulatory environment is developed.

Looking ahead We began GECS in 2009, when there was immense turbulence following the global financial crisis. We knew then that while there was no shortage of views on the outlook for recovery, there were few concrete indicators to turn to – and no indications about what accountants thought about the economic picture.

Over a decade later, and during turmoil caused by the pandemic, the experience, insights and knowledge of our and IMA’s global members are as valuable as ever, and especially so as we look ahead to a post-pandemic future.

Their views help us to monitor volatility and provide a clear picture of current issues and challenges. And we can also ensure the right responses can be made, whether that’s through informing business strategy or influencing public policy.

Together, ACCA and IMA members provide a sound bellwether for the future economic climate because they are at the forefront of economic activity. And the insights for GECS Q4 2021 show that despite the recent storms, there’s cautious optimism for 2022 as we look forward to continued global economic growth, albeit at a modest pace. • Michael Taylor is the chief economist at ACCA * The survey of 2,471 members of the ACCA (the Association of Chartered Certified Accountants) and IMA® (Institute of Management Accountants) was conducted during late November and early December 2021.