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Economic confidence recovers as fear of recession in 2023 dissipates

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Recent financial survey by ACCA and IMA paints a hopeful picture

Η οικονομικor αυτοπεποθη&sigma ;η ανακαμπτει καθoς ο φoβος για yφε&sigma ;η το 2023 διαλyεται

Consistent with the perennial commitment to contribute to the development of the profession and to support the economies of the countries where it operates, ACCA (Association of Chartered Certified Accountants) continues to carry out its studies and research, to closely monitor the variables that affect the economy and development. Although the results of the Q1 2023 Global Economic Conditions Survey (GECS) show the economic confidence index lower compared to the previous year, at the same time it records an increase from the previous quarters. The upward trend that began in Q3 2022 stems from the continued decline in fear of the prospect of a recession in 2023, a finding consistent with the international upswing in economic confidence and business improvement.

The positive results are underlined by the GECS survey's two “fear” indicators, which measure the concerns of the survey participants about the possibility of companies (their customers and/or service providers) to suspend their turnover. Both of these indicators started to show improvement from Q4 2022, after touching the lowest levels in 2020.  Although new business was ischemic in 2022, the recent survey showed an improvement in both employment and capital spending. One factor that has contributed to the recovery in economic confidence is a reduction in concerns about increased costs. Commodity prices remain subdued, while Europe has benefited from natural gas prices returning to pre-Russian invasion of Ukraine. Despite the positive signs, any announcement of a full recovery is considered premature given today's data, including:

Central Banks are still raising interest rates. The lagged effects of monetary policy shrink the scope of the real economy. The banking system continues to face substantial challenges.

Global economic confidence appears to have strengthened for the 3rd consecutive quarter, not only because cost-related concerns have eased, but also because concerns about financial access and ensuring timely repayment have eased. Reports of problems with immediate repayments are at their second lowest in the survey's history. Improved macroeconomic conditions also appear to have encouraged companies to redefine their capital spending and hiring plans. When respondents were asked how they plan to respond to the changing economic environment, companies that said they plan to increase capital investment and staff were significantly higher in the quarter under study. The same applies to companies that plan to increase jobs and make new hires.

This fact is of particular interest considering the tightening of global monetary policy by global Central Banks. The past 12 months have seen the most aggressive and simultaneous tightening of monetary policy in more than 40 years, in terms of pace, scale and scope. Also of interest is the fact that these events have not yet had an impact on the financial position, business capital expenditure and hiring. Since monetary policy operates with long-term and variable lags, this is likely to be a problem later in the year.

Andreia Stanciu, Head of ACCA Southern Europe, said: “The global economy entered 2023 with more milestones than expected. Economic confidence has grown as businesses come to terms with the fallout from the Russian-Ukrainian war. Economic sentiment has been helped by a faster-than-expected easing of China's policy to record zero Covid-19 cases and the normalization of energy prices in Europe, events that should have helped lower headline inflation but remain still some negative risks that could dominate”.

Varvara Petropoulou-Lillika, ACCA Representative in Cyprus commented that “the result of the latest survey is really very encouraging. What is even more interesting as seen in the change in GECS economic confidence indicators over the quarter is the 30 point improvement in economic confidence in Western Europe. An improvement that was registered even though the governments of the countries implemented strict policies that affected not only the business environment, but also directly the final consumer. We hope that the indicators will remain upbeat in the next quarter, when the tightening of monetary policy and measures to reduce inflation will start to manifest their effects.”

Kyriakos Iordanos, CEO of SELK added: “We hope that the global indications will have a similar impact on the Cypriot reality. Although we see an improvement in our country's economy, we are also facing the consequences of the anti-inflationary measures imposed mainly by the European Central Bank. This affects domestic business perceptions and economic confidence levels, thereby slowing growth.”

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Source: www.kathimerini.com.cy

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