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Global Economic Recovery in Reverse in Q3 2010, say Accountants

KARACHI (November 10, 2010) – The fragile global economic recovery has gone into reverse in the third quarter of 2010, with investment and business confidence suffering a serious setback, according to the latest survey of finance professionals by ACCA (the Association of Chartered Certified Accountants).

Nearly half (49%) of the 1,895 professional accountants surveyed by ACCA believe that conditions are stagnating or deteriorating, and for the first time in the survey’s two years, ACCA’s key economic and business confidence indicators have not pointed towards improving conditions.

Crucially, the report says, the outlook for new orders has weakened in the last three months and more respondents are now reporting concerns about whether their suppliers can continue to be viable. Inflation continued to rise in the last quarter, with 35% of respondents seeing an increase in their operating costs, while slightly more accountants reported that their firms and clients could not get vital finance from banks and other lenders than three months ago.

While ACCA has warned that it is too early to tell whether any particular economies are about to suffer a renewed downturn, it expects that the next quarter’s figures will show whether we are dealing with a temporary ‘pause for breath’ or something much more dangerous. The probability of the latter is reinforced by a sharp deterioration in the survey’s investment indices. ACCA believes that governments’ gradual withdrawal of support for investment over the past nine months is now beginning to tell as demand and financing conditions weaken once again.

Accountants based in Western Europe believe that their governments will reduce spending substantially over the next five years, and those in the Americas are slowly coming to anticipate some measure of austerity as well. On the other hand, ACCA members in Africa and Asia expect public spending to rise substantially. Of those, members in the Asia Pacific region are much more confident that their governments can afford increased levels of spending, while those based in South Asia and Africa expect a tough balancing act ahead.

The Picture in Pakistan

Confidence in the global economic recovery has taken a serious knock in Pakistan during the last three months, and accountants’ confidence in the prospect of their own organisations has fallen accordingly. The share of the respondents who thought the recovery was imminent or already underway fell from 60% to 42%, and 42% of respondents reported a loss of confidence in their organisations, up from 23%.

A major contributor to this has been the rise of inflation, with two thirds (67%) of respondents reporting its effects on themselves and their clients. This in turn was reinforced by foreign exchange rate fluctuations, which were cited as a problem by 44% of the sample. Pakistan is, in fact, more extensively affected by both of these problems than any other major ACCA market. Coupled with falling demand (cited by 63%) these problems have led to larger-scale job cuts than those seen in any other major ACCA market. Cost-cutting in general remains the most commonly cited source of opportunity for respondents in Pakistan and their organisations, followed by expansion into new or niche markets.

Cost-cutting, however is less likely in the public sector, with 55% of the 64 respondents in Pakistan expecting Government spending to rise in the next five years and over-spending is seen as a significant risk. Pakistan appears to have the most fragile public finances of any major ACCA market and was the only one in which an ‘extreme overspend’ (i.e. spending to rise substantially when respondents feel it should be falling substantially) was the most common prediction (21%). Overall, almost half of ACCA’s sample (46%) expected Government spending to deviate dangerously from what they saw as the ‘correct’ level of spending. Consistent with these concerns, no respondents rated the Government’s response as ‘good’ or ‘very good.’

Commenting on the global picture, report author Manos Schizas, senior policy adviser with ACCA, said: “The latest survey marks a turning point in the economic recovery: weakening demand, tightening finance, loss of confidence and slowing investment. It doesn’t look good and almost no part of the world is unaffected.”

“On the other hand, there are still reasons to be optimistic. In the midst of all this, members are reporting more opportunities for their organisations and their clients; not to cut costs, but to expand and add value. That, plus the ever-decreasing reliance on government support, can only be good news,” he added.

The report is available from:
http://www.accaglobal.com/pubs/general/activities/library/other_issues/surveys/tech-ms-gec07.pdf

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