Global businesses were in confident mood over fourth quarter, ACCA survey finds

Business confidence saw a marked improvement at the end of 2015, according to a survey conducted by Association of Chartered Certified Accountants and the Institute of Management Accountants.

However, the study – Global Economic Conditions Survey – for the final quarter of last year, which polled more than 2,500 finance professionals and over 200 CFOs around the world, including 447 UK respondents, also revealed several areas of concern.

On a positive note, it showed that despite UK economic growth slowing in 2015, business confidence improved markedly in the fourth quarter, which suggests some of the current gloom may be unjustified. Indeed, the domestic economy remained healthy. Household spending was helped by low inflation and rapid wage growth. Real household disposable incomes rose by 4% in third quarter, fastest rate since the first quarter of 2010.

The recent drop in oil prices will give consumers another boost by keeping inflation lower for longer. Low inflation has also reduced the chances of the Bank of England raising interest rates any time soon. Markets now expect it to wait until 2017 before tightening.

On a more downbeat note, there was a dip in the capital expenditure index, which suggests that investment growth – an important driver of the UK economy over the past couple of years – could be about to fade.

Furthermore, businesses are bracing themselves for the next round of austerity, with government spending expectations close to a record low. Around two thirds of UK firms (66%) were expecting government spending to be cut, compared with 42% globally.

Meanwhile, falling income is the biggest concern for global businesses, according to GECS. Nearly half of businesses (46%) reported a decline in earnings in the fourth quarter of 2015.

Global 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% 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% 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.

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.”