Global economy: Fragile confidence in early 2021

16:43 | 04/03/2021 Economy

According to the latest Global Economic Conditions Survey (GECS) released 1st Mars from ACCA (the Association of Chartered Certified Accountants) and IMA (Institute of Management Accounts), global confidence in the fourth quarter of 2020 stalled and remains fragile at the start of 2021.

global economy fragile confidence in early 2021

The survey notes that the global economy contracted by around 4.5 percent in 2020, the biggest fall in global activity in several decades. Having recovered from lockdown-imposed weakness in the first half of the year, many economies again faced weakness as a second wave of COVID infections triggered renewed lockdowns. The survey envisions a steady recovery this year, but continued uncertainty limits the bounce in consumer and busines confidence, with pre-crisis output not being reached until mid-2022.

The survey also indicates that the Global orders, employment and capital investment indices recorded a further modest improvement, but still point to activity well below the pre-crisis level in the fourth quarter of 2019. The “fear” indices which means the concern about customers and suppliers going out of business, edged lower in the fourth quarter (Q4) of 2020 but remain elevated, clearly underlining the extreme uncertainty in the global economic outlook at the start of 2021. At the same time, inflation concerns remain negligible with concern about costs staying close to an all-time low.

“Last year was the worst for the global economy for several decades,” said Warner Johnston, Head of ACCA USA. “2021 will see recovery, but precisely when and how strong it will be is very uncertain. We anticipate a weak start, followed by a recovery gathering momentum through the second half. Much depends on the evolution of the COVID virus and variants relative to the progress of vaccination programs, and there is great uncertainty surrounding these developments.”

Agreed with this points, Raef Lawson, IMA vice president of research and policy analysed the policy responses to the pandemic that have left public finances of most economies in a perilous state with budget deficits in the range of 10 percent to 15 percent of GDP in many countries with debt to GDP ratios well over 100 percent.

In North America, confidence dropped in Q4, having jumped by the most on record in Q3. The orders and capital spending indices were both little changed in Q4 and were well below their pre-crisis levels of a year ago. The employment index recovered significantly in Q4, highlighting the continued relatively good jobs market rebound since the early weeks of the pandemic. Overall, the North America region GECS is consistent with continued recovery in early 2021.

Meanwhile, the U.S. economy suffered one of the smallest contractions among advanced economies last year - likely around 3.5 percent. A large fiscal package equivalent to around 10% of Gross Domestic Product and easier monetary policy, including cuts in interest rates and greatly increased quantitative easing, cushioned the economic downturn.

But toward the end of 2020, the economy was losing momentum and COVID infections were increasing rapidly. The report notes that the economy was likely to show modest expansion in the fourth quarter of 2020, but renewed weakness is possible in early 2021.

“There are significant risks to the outlook for the year ahead,” Lawson underlined. “Much depends on the evolution of the COVID virus and variants, rates of infection and the speed and effectiveness of vaccination programs. The central case is economic weakness early on in 2021 as the virus dominates, followed by recovery gathering momentum later in the year as vaccination takes effect. There are significant risks surrounding the timing of these developments. In addition, the emergence of vaccine- resistant variants of the COVID virus, unexpected adverse side effects from vaccination and low vaccine take up are also health-related risks that could cause deviations in the recovery path.”

The GECS, the largest regular economic survey of more than 3,000 senior accountants and finance professionals from around the world, captured the true scale of the global recession caused by the response to the coronavirus pandemic, noting that global economic prospects have deteriorated since the survey was completed on December 8.