Cost concerns reach record high

Concerns grow over operating costs

GECS’s index of concern about operating costs jumped again by nine percentage points in the latest survey and is now at its highest level on record at 62 per cent.

This dramatic rise has played out over the last year and tracks the effects of rising energy and transport costs caused by supply chain shortages and global disruption.

In the first-quarter survey, global confidence and orders were little changed, up by four points to +9 for confidence and by two points to -3 for orders. Other economic activity indicators, such as employment and capital spending improved. Overall, the first-quarter survey supports the trend of modest overall growth through to the middle of the year, following the strong recovery of 2021.

In the first quarter, the Middle East was the best performing region with jumps in confidence and orders, likely a reflection of the increase in the oil price. Confidence and orders fell back in North America, influenced by the spread of the Omicron variant.

The level of orders in advanced regions remains above that in emerging regions, as it has throughout the post-pandemic recovery.

GECS’s two fear indices – measuring concern that customers and suppliers may go out of business – were little changed in the first-quarter survey, down by two points and one point respectively. Both have fallen back from the extreme levels seen in 2020 but are still above pre-pandemic levels.

ACCA’s chief economist Michael Taylor said, “We expect that the rise in commodity prices, especially for oil, natural gas, and wheat, will push inflation even higher in most economies, further squeezing real incomes and slowing economic growth.”

Compared with previous forecasts, global growth may be reduced by as much as one percentage point this year, to around 3.25 per cent.

Loreal Jiles, vice president of research and thought leadership at IMA added, “We again asked respondents to name their two biggest economic risks – 51 per cent said supply chain disruption and 50 per cent said renewed pandemic restrictions."

"Compared with the Q4 survey, there was an increase in rising interest rates as a risk, up to 40 per cent from 26 per cent. We expect US interest rates to rise steadily this year, and this may result in a tightening of global financial conditions.”

Both ACCA and IMA warn of the risk of policy mistakes.

Jiles continued, “Removing the exceptional policies introduced to mitigate the effects of the pandemic was always going to be tricky. Over the last year, supply shortages have resulted in a stagflation scenario of weak economic growth combined with high rates of inflation reminiscent of the 1970s.”

Taylor added, “Central banks in advanced economies face a difficult judgement call that could result in either an overly tight policy causing recession or a too relaxed policy leading to inflation. Policies need to be thought through and stress-tested very carefully in the days, weeks, and months ahead.”