Credit Crunch Cools Asia Pacific Business Confidence

The third quarter of 2014 was a challenging time for businesses in the Asia-Pacific region, according to the largest regular survey of finance professionals around the world.

The global economic conditions survey (GECS) for Q314, carried out jointly by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA) found that overall, the region suffered a significant loss of confidence after nine months of relative buoyancy, with only 15% of respondents reporting confidence gains (down from 24% in Q2), against 48% (up from 37%) who reported losses.

Tightening conditions are, to some extent, to blame for the recent poor confidence readings. Although business opportunities held up reasonably well and access to finance tightened only marginally, respondents in the region reported a severe tightening of business cashflow; investment opportunities were also down significantly quarter-on-quarter, continuing a persistent medium-term trend.

However, report author Manos Schizas, senior economic analyst with ACCA, sees cause for optimism. “There is hope for stability going forward. Prices and exchange rates continued to stabilise, and businesses in the region continued to add capacity, building on a strong two-year trend,” he says.

“Unlike business confidence, the macro-economic outlook for the region remained stable in the third quarter of 2014, with 39% of respondents believing conditions were improving, and 54% pessimistic about the recovery. Both figures were unchanged quarter-on-quarter.”

Globally, GECS found that business confidence in the real economy and capital spending have both taken a direct hit. The two bodies warn that only the continued strength of financials and selected emerging markets helps maintain the illusion of recovery.

The headline GECS figures are not particularly alarming: the third quarter GECS findings, based on the views of 1,000 finance professionals around the world, show that a third of global respondents (33% up from 32% in the last quarter) experienced a loss of confidence in the last quarter, while only 28% reported confidence gains, down from 30% in the previous quarter.

A majority of finance professionals (58%) were still optimistic about the state of the economic recovery in their countries with 37% pessimistic – a fall of one percentage point on the previous survey. However, the report also uncovers some worrying trends: a second consecutive quarter of falling global business confidence; a growing reliance on government spending; fears of deflation in the developed markets; and a synchronised fall in capital spending around most of the world.

“It is clear that the buoyancy of the financial sector has masked the true picture in the real economy, where despite growth capital being at its most accessible since the global economic crisis, the lack of genuine business opportunities has meant that investment has been subdued around the world,” said Schizas.

“The drop in demand for oil and other commodities has also been a test for many emerging economies, which rely on fuel and mineral exports for continued growth and financial stability.”

The report also notes that the rapid escalation of relatively contained issues, such as the Ukrainian crisis, the Ebola outbreak and the rise of the Islamic State, raised serious questions about how the global economy would react to a truly destabilising global event.

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