Executive Briefings

Economic Forecast by CFOs, Accountants Shows Pessimistic Outlook for Global Growth

The world's CEOs, CFOs and senior management accountants have an increasingly negative outlook for the global economy over the next 12 months, according to the CGMA Global Economic Forecast released today by the American Institute of CPAs (AICPA) and Chartered Institute of Management Accountants (CIMA). The quarterly forecast polled 600 management accountants from more than 60 countries on global and domestic economic conditions and the outlook for their organizations.

The CGMA Global Economic Index - a comprehensive gauge of executive sentiment within the Forecast - declined 7 points to 58 from the first quarter 2012 reading of 65. The Index is a composite of 10 equally weighted survey measures on a scale from 0 to 100, with 50 considered neutral and numbers above that signifying positive sentiment.

While all factors in the Index weakened, the global economic optimism component registered the most significant decline, dropping 11 points from the first quarter to 26, reflecting deep concern. Only 11 percent of respondents expressed optimism, ranging from a high of 17 percent in emerging economies to only 5 percent in developed economies.

Despite the cautious confidence seen in first quarter 2012, the Index fell back to the level seen at the end of 2011, led by a drop in executives' optimism about the global economy. The declines were most significant in Europe, the UK and other developed economies, where management accountants registered concerns for both global and domestic economies. Interestingly, executives in all regions of the world except emerging economies saw declines in levels of optimism about their own domestic economies.

"Although the CGMA Global Economic Index is still slightly above neutral, the pullback in overall optimism points to an unclear future in which companies must be prepared to address a variety of economic scenarios," said Arleen Thomas, AICPA senior vice president for management accounting. "Global businesses continue to show a need for the strategic perspectives of management accountants who can navigate the uncertain elements of our economy."

In the U.S., 36 percent of management accountants surveyed are optimistic about the domestic economy, down from 44 percent in the prior quarter. Asked about their own organizations, 51 percent of U.S. respondents are optimistic about prospects for their companies, a decrease of 7 percentage points over last quarter.

Other key survey findings include:

Revenue and Profits: Expectations for revenues and profits have declined since the last quarter, particularly in Western developed economies. The overall expected increase in revenues over the next 12 months fell from 4.1 percent in the first quarter to 2.7 percent in the second quarter.  In the U.S. this number fell from 4.8 percent to 3.5 percent. Profit expectations also declined from an expectation of 3.5 percent to 2.0 percent globally and 3.8 percent to 3.4 percent in the U.S.

• Weak Employment Outlook: Headcount projections declined from a 1.6-percent increase expected in the last survey to 0.6 percent in the current survey. With the exception of the retail and wholesale trade, the reduced projections for headcount increases were spread across all industry sectors.  Technology hiring fell from an expected increase of 2.4 percent three months ago to 0.9 percent currently. Staffing cuts in the banking sector are now 1.5 percent as compared with reductions of 1.0 percent in the first quarter. In the U.S., projections declined from 2.4 percent to 1.3 percent.

• Inflation Worries Subside: Worries about inflation subsided somewhat for most regions, reflecting the recent falls in commodity prices. A majority of Asian companies (63 percent) continue to be most concerned about inflation, while in the U.S. fear of inflation dropped from 49 percent to 33 percent. Concerns about deflation continue to be low (9 percent)  in the U.S., but the number of European companies concerned about deflation increased to 15 percent from 11 percent in the first quarter of 2012.

• Firms Expect More Difficult Financing: Financing continues to be most challenging for Asian companies with more than a third (37 percent) expecting greater difficulty, followed by those in emerging economies (28 percent) and Europe (28 percent).  The U.S. was the exception, with only 9 percent expecting more difficulty in obtaining financing.

• Industry Sector Outlook: From an industry sector perspective, 53 percent of finance and insurance respondents are now optimistic about their own companies, followed closely by those in retail and wholesale trade (50 percent). All other sectors reported less than 50 percent optimism, including banking (48 percent), manufacturing (45 percent) and technology (41 percent).

The 10 factors included in the CGMA Global Economic Index are as follows:

1. Global Economy Optimism - Respondent optimism about the global economy

2. Domestic Economy Optimism - Respondent optimism about their own national economy

3. Organization Optimism - Respondent optimism about prospects for their own organization

4. Expansion Plans - Respondent expectations of whether their business will expand over the next 12 months

5. Revenue - Expectations for increases or decreases in revenue over the next 12 months

6. Profits - Expectations for increases or decreases in profits over the next 12 months

7. Employment - Expectations for increases or decreases in headcount over the next 12 months

8. IT Spending - Plans for IT spending over the next 12 months

9. Other Capital Spending - Plans for capital spending over the next 12 months

10. Training & Development - Plans for spending on employee training and development over the next 12 months.

Source: CGMA

 

The CGMA Global Economic Index - a comprehensive gauge of executive sentiment within the Forecast - declined 7 points to 58 from the first quarter 2012 reading of 65. The Index is a composite of 10 equally weighted survey measures on a scale from 0 to 100, with 50 considered neutral and numbers above that signifying positive sentiment.

While all factors in the Index weakened, the global economic optimism component registered the most significant decline, dropping 11 points from the first quarter to 26, reflecting deep concern. Only 11 percent of respondents expressed optimism, ranging from a high of 17 percent in emerging economies to only 5 percent in developed economies.

Despite the cautious confidence seen in first quarter 2012, the Index fell back to the level seen at the end of 2011, led by a drop in executives' optimism about the global economy. The declines were most significant in Europe, the UK and other developed economies, where management accountants registered concerns for both global and domestic economies. Interestingly, executives in all regions of the world except emerging economies saw declines in levels of optimism about their own domestic economies.

"Although the CGMA Global Economic Index is still slightly above neutral, the pullback in overall optimism points to an unclear future in which companies must be prepared to address a variety of economic scenarios," said Arleen Thomas, AICPA senior vice president for management accounting. "Global businesses continue to show a need for the strategic perspectives of management accountants who can navigate the uncertain elements of our economy."

In the U.S., 36 percent of management accountants surveyed are optimistic about the domestic economy, down from 44 percent in the prior quarter. Asked about their own organizations, 51 percent of U.S. respondents are optimistic about prospects for their companies, a decrease of 7 percentage points over last quarter.

Other key survey findings include:

Revenue and Profits: Expectations for revenues and profits have declined since the last quarter, particularly in Western developed economies. The overall expected increase in revenues over the next 12 months fell from 4.1 percent in the first quarter to 2.7 percent in the second quarter.  In the U.S. this number fell from 4.8 percent to 3.5 percent. Profit expectations also declined from an expectation of 3.5 percent to 2.0 percent globally and 3.8 percent to 3.4 percent in the U.S.

• Weak Employment Outlook: Headcount projections declined from a 1.6-percent increase expected in the last survey to 0.6 percent in the current survey. With the exception of the retail and wholesale trade, the reduced projections for headcount increases were spread across all industry sectors.  Technology hiring fell from an expected increase of 2.4 percent three months ago to 0.9 percent currently. Staffing cuts in the banking sector are now 1.5 percent as compared with reductions of 1.0 percent in the first quarter. In the U.S., projections declined from 2.4 percent to 1.3 percent.

• Inflation Worries Subside: Worries about inflation subsided somewhat for most regions, reflecting the recent falls in commodity prices. A majority of Asian companies (63 percent) continue to be most concerned about inflation, while in the U.S. fear of inflation dropped from 49 percent to 33 percent. Concerns about deflation continue to be low (9 percent)  in the U.S., but the number of European companies concerned about deflation increased to 15 percent from 11 percent in the first quarter of 2012.

• Firms Expect More Difficult Financing: Financing continues to be most challenging for Asian companies with more than a third (37 percent) expecting greater difficulty, followed by those in emerging economies (28 percent) and Europe (28 percent).  The U.S. was the exception, with only 9 percent expecting more difficulty in obtaining financing.

• Industry Sector Outlook: From an industry sector perspective, 53 percent of finance and insurance respondents are now optimistic about their own companies, followed closely by those in retail and wholesale trade (50 percent). All other sectors reported less than 50 percent optimism, including banking (48 percent), manufacturing (45 percent) and technology (41 percent).

The 10 factors included in the CGMA Global Economic Index are as follows:

1. Global Economy Optimism - Respondent optimism about the global economy

2. Domestic Economy Optimism - Respondent optimism about their own national economy

3. Organization Optimism - Respondent optimism about prospects for their own organization

4. Expansion Plans - Respondent expectations of whether their business will expand over the next 12 months

5. Revenue - Expectations for increases or decreases in revenue over the next 12 months

6. Profits - Expectations for increases or decreases in profits over the next 12 months

7. Employment - Expectations for increases or decreases in headcount over the next 12 months

8. IT Spending - Plans for IT spending over the next 12 months

9. Other Capital Spending - Plans for capital spending over the next 12 months

10. Training & Development - Plans for spending on employee training and development over the next 12 months.

Source: CGMA