A disturbing trend emerged from a recent worldwide survey of 2,550 finance professionals working across a range of industries: bedrock business fundamentals, such as access to credit and affordable supplies of energy, are faltering – and that doesn’t bode well in terms of how freight demand might shape up for the coming year.
More broadly, some 67% of respondents to the 15thquarterly Global Economic Conditions Survey (GECS) – compiled jointly by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA) – said that the global economy is “stagnating or reversing,” and that this decline in confidence is due almost entirely to changing business fundamentals – such as demand, access to finance, prompt payment and inflation – as opposed to respondents’ sentiment.
In the U.S., confidence fell in the third quarter, with small- and medium- sized enterprises appear to be taking the worst hit. The Northeast and South appear to be the “least confident” regions in the U.S. for the past two quarters, and, after controlling for sample influences, it is clear that little has changed in the third quarter, noted Manos Schizas (at right), ACCA’s senior economic analyst and the survey’s author.
Overall, about 21% of U.S. respondents reported confidence gains, while 36% reported losses. On top of that, 34% of U.S. respondents were relatively upbeat about the state of the global economic recovery, believing it to be on the right track, while 61% believe it’s stagnating or deteriorating.
“This quarter has seen business confidence fall for all the right reasons,” Schizas said. “Around the world, and with few exceptions, the fundamentals of the business environment are deteriorating, and businesses are once again having the liquidity problems we thought we’d put behind us.”
However, he maintains that there are still many reasons to be optimistic. “Europe’s debt crisis showed signs of being contained in the third quarter, at least for the time being, and finance for investment is being unlocked in many parts of the world,” Schizas emphasized.
Raef Lawson (at left), IMA’s VP-research, noted that the “interconnectedness” of the global economy is playing a much larger role in all of this.
“The slowdown in Asia; the Eurozone debt crisis; and the sluggish U.S. recovery all are feeding into each other and no region is unaffected,” he pointed out. “In fact, the degree to which movements in the GECS indices are synchronized between regions is uncanny.”
Yet Lawson stressed that are still some positive trend lines in the making. “Looking at the U.S., there appear to be some significant signs of recovery,” he noted. “Many respondents reported increased housing starts in their regions, and there was also consensus that the auto industry is recovering."
That said, Lawson believes it’s worth noting how sensitive the U.S. is to what he calls "spill overs" from economic conditions elsewhere – in this particualr case, falling demand in both Europe and the Far East along with rising prices in the latter.
Lawson added that “home grown” issues weakening business fundamentals still need to be dealt with. For example, some respondents to the ACCA/IMA survey felt that efforts to address the two major U.S. fiscal challenges – debt sustainability and the fiscal cliff – were put on hold prior to the Presidential elections and thus added to the uncertainty caused by economic conditions and the elections themselves.
Furthermore, the implementation of the Patient Protection and Affordable Care Act – more commonly known as “ObamaCare” – is being cited by some respondents as having increased costs for some businesses, while others report they are thriving on the increased demand for software and consultancy services created by the new rules.
Then there’s this worrisome note: Despite falling natural gas prices, assisted by continued investment in alternatives such as shale gas, some businesses continue to report increasing energy prices. That’s not a trend line I think anyone expected to see – especially following the recent global energy forecast by the International Energy Agency (IEA).
Finally, with the Federal Reserve this past September outlining plans to engage in “quantatative easing” indefinitely, some respondents expressed concerns about the artificially low cost of credit and how that affects financial strength going forward.
Thus there are definitely some major worries developing about how solid the foundations of global businesses really are as we eye a new year. Let’s hope then that the shoring up process has already begun.