UK business confidence has dropped to its second lowest level since 2011, according to the latest Global Economic Conditions Survey from the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA).
The survey suggests that global business confidence in Q4 has dropped amid on-going political and economic uncertainty caused by:
- Government investment falling to its lowest level since the start of 2016, with many developed markets still firmly in austerity mode.
- Changes in the political landscape after the recent US election.
- Uncertainty over trade developments between the US and China.
- Concerns over Brexit and forthcoming European elections - 55 per cent of respondents said they viewed Brexit as more of a risk than an opportunity.
The survey of over 4,500 finance professionals and business leaders worldwide found that, while the economic outlook has improved slightly in the US and China over the last quarter, the UK hit its second lowest confidence levels since 2011.
Almost half (44 per cent) of global respondents expressed concern over falling income because of low levels of government expenditure, while another 43 per cent reported worsening business confidence.
Across the Eurozone, the resignation of Italian Prime Minister Matteo Renzi in December 2016, combined with a series of upcoming national elections, led to a downbeat mood. In the UK, business confidence fell sharply ahead of Brexit negotiations.
“Current political uncertainty is clearly having an impact on global business confidence. In the US the Trans-Pacific Partnership is unlikely to be ratified while likely restrictions on trade with key markets including China and Mexico are also major factors here," commented Faye Chua, head of business Insights at ACCA. "In Europe, uncertainty over the outcome of elections in the Netherlands, France and Germany – which could lead to major policy shifts for regional trade and the future direction of the Eurozone – all contribute to a gloomy outlook going into 2017."
However, she added that it is not all bad news. "Despite these concerns, the global economy may be on course for growth in 2017 as China responds positively to its economic stimulus programme and the US maintains a partial recovery.”
Chua added that the "Brexit effect" is clearly affecting confidence levels. “Confidence in the UK has also slumped to the lowest level in six years, with over half of respondents (55 per cent) seeing Brexit as more of a risk than an opportunity," she said. Capital, employment and investment indexes also fell, possibly because firms are delaying decisions until the political and economic picture around Brexit becomes clearer.
Retail spending has remained robust and the fall in Sterling has boosted exports, but the survey warned that it is likely that economic growth will slow in 2017 as a result of the "Brexit effect" on confidence.
In the Eurozone there are growing fears about a potential banking crisis in Italy, Greece and Cyprus and national elections in the Netherlands, France and Germany this year, are adding to political and economic uncertainty.
“A strengthening US dollar could have significant impacts for trade-dependent economies such as Taiwan, Hong Kong, Singapore and Vietnam, as well as an impact on capital investments for emerging markets such as South Africa, Colombia and Turkey," Chua said. "Yet emerging markets are also less dependent on the dollar than before, so we are unlikely to see a repeat of the crises of the 1990s."
She said that the findings highlight that 2017 could mark a new Age of Uncertainty for the global economy. But, on a positive note, some of the underlying strengths of OECD and non-OECD economies suggest growth can be maintained and even improved over the next few years.
Fieldwork for the Q4 2016 GECS took place between 24 November and 13 December 2016 and attracted 4,551 responses from ACCA and IMA members around the world, including more than 350 CFOs.