Economic confidence is rising across the globe as clear signs of business improvement emerge.
While the Q1 2023 Global Economic Conditions Survey (GECS) shows confidence lower than a year ago, it rose for the third consecutive quarter as fears fade over the prospects of a recession in 2023.
This better news is underlined by the two GECS “Fear’’ indices which reflects respondents concerns that customers and/or suppliers may go out of business. Both these series improved on Q4 2022. Indeed, worries about suppliers have fallen to the lowest level since 2020. And although new orders have flatlined this quarter, the survey showed improvements in both employment and capital expenditure (capex).
Although with Central Banks still raising interest rates and the delayed effect of monetary policy tightening on the real economy, as well as recent challenges in the banking sector, it may be premature to sound the “all clear.”
ACCA head of skills, sectors and technology, Jamie Lyon, said “The global economy entered 2023 with more momentum than many had expected. Confidence has risen as business comes to terms with the fallout from the Russian-Ukraine war. The economic climate has been helped by a faster-than-expected relaxation of China’s zero-COVID policies, and more normal energy prices in Europe, that should help to reduce headline inflation and may bring about a pause in Central Banks’ tightening of monetary policy, but there are still some downside risks that may prevail.”
IMA vice president of research and thought leadership, Loreal Jiles, added: “Looking at the change in the GECS Confidence Indices over the quarter, what stands out is the 30-point improvement in Confidence in Western Europe. However, this good news was not limited to Europe; Asia-Pacific, North America and South Asia also registered an improvement. This was a broad-based pick-up, with the exception of Africa and the Middle East.”
Although Global New Orders are flat-lining, one factor sustaining the rebound in Confidence may be the decline in the level of concern about “increased costs.” Cost pressures look like they may have peaked, although they still remain well above the median recorded over the survey’s history. Commodity prices remain subdued, and Europe has benefitted from natural gas prices returning to levels seen before Russia’s invasion of Ukraine.
Global confidence has edged up for the third consecutive quarter, not only because cost concerns have eased, but also because worries about accessing finance and securing prompt payment have declined.
Indeed, reports of problems with prompt payment fell to the second lowest level in the survey’s history. The improved macro conditions also appear to have encouraged companies to revisit their capex and hiring plans.
When asked how they planned to respond to the changing economic environment, the net balance of companies planning to increase investment in capital and staff rose on the quarter, as did the net balance of companies planning to increase job creation.
This is something of a surprise given the rapid tightening of global monetary policy by the world’s Central Banks. The past 12 months have seen the most aggressive simultaneous tightening of policy in more than 40 years in terms of pace, scale, and breadth. It is curious that this has not yet had a material impact on financing conditions and corporates’ capex and hiring intentions. But monetary policy works with long and variable lags, which suggests that this could still become a problem later in the year.