Economic slowdown poised to continue to dominate international business landscape

February 16, 2016 | 18:24
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Falling income is the biggest concern for global businesses, according to the latest largest regular global survey of finance professionals.

Nearly half of businesses (46 per cent) reported a decline in earnings in the fourth quarter of 2015 in the final Global Economic Conditions Survey of last year, carried out by ACCA (the Association of Chartered Certified Accountants) and IMA (the Institute of Management Accountants).

The survey of more than 2,500 finance professionals and over 200 CFOs around the world also shows that business confidence has hit rock bottom where 44 per cent of respondents were less confident than three months earlier.

Businesses not only reported a fall in income, but also more difficulty in accessing finance, with half of business cutting their workforce or putting a recruitment freeze in place and 40 per cent saying they had cut back investment plans since the third quarter of 2015.

Confidence remained especially weak in emerging economies. China’s slowdown is affecting business confidence around the rest of the world and is contributing to serious problems in other major emerging economies, especially those that rely on commodity exports, such as Brazil and Russia.

As the price of oil continues to tumble the producers that were relatively well prepared for a drop in energy prices, like Saudi Arabia and the UAE, are now facing weaker growth as governments turn their attention to repairing their finances. Over 60 per cent of respondents in the region reported they had cut back on investment and employment.

Businesses in OECD economies are more upbeat. Most advanced economies are net importers of energy, and so have benefitted from declines in oil prices. The US economy continues to perform relatively well, even if business confidence was undermined last quarter by the strength of the US dollar and the prospect of a rate hike.

The most significant improvement in business confidence was in the eurozone, where the risk of a near-term break-up of the currency area has faded into the distance after the latest Greek bailout.

Rising costs were still a problem, with 40 per cent of businesses reporting concerns. While commodity prices have fallen, firms in many parts of the world, particularly Asia and Africa, are still having to deal with rapidly rising wages.

Faye Chua, head of Business Insight at ACCA, said: “There is a troubling long list of risks developing for the majority of global businesses. Many are already, unsurprisingly, reacting to falling opportunities by scaling back on capital and employment investments, which will, in turn, contribute to the further slowdown of the global economy. This, combined with the fact that many governments are having to cut back on spending means there are grounds for concern.”

The survey also shows that despite concerns over global growth, businesses are not expecting much response from governments.

Government spending fell to its lowest-ever level last quarter. Governments that are reliant on revenue from the commodity sector to fund their spending, such as those in Saudi Arabia, the UAE, Brazil, Russia and Malaysia, could easily be forced to tighten their belts. Most businesses in the Caribbean, Central & South America and the Middle East, as well as Western Europe, are now expecting spending cuts.

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