GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
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GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
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© The Association of Chartered Certified Accountants, Institute of Management Accountants
July 2021Introduction
The Global Economic Conditions Survey (GECS), carried out jointly
THE GLOBAL by ACCA (the Association of Chartered Certified Accountants) and
ECONOMIC IMA (the Institute of Management Accountants), is the largest regular
CONDITIONS SURVEY economic survey of accountants around the world, in terms of both the
(GECS), IS THE number of respondents and the range of economic variables it monitors.
LARGEST REGULAR The GECS has been conducted for over 10 years. Its main indices are good lead
ECONOMIC SURVEY indicators of economic activity and provide a valuable insight into the views of finance
OF ACCOUNTANTS professionals on key variables, such as investment, employment and costs.
AROUND THE WORLD. Fieldwork for the 2021 Q2 survey took place between 1 and 15 June 2021 and attracted
1,100 responses from ACCA and IMA members, including over 100 CFOs.
ACCA and IMA would like to thank all members who took the time to respond to the
survey. It is their first-hand insights into the fortunes of companies around the world
that make GECS a trusted barometer for the global economy.
3Executive summary
The Q2 Global Economic Conditions Q2 survey and is consistent with further
THE Q2 GLOBAL Survey (GECS) points to strong global recovery in the global economy through
economic growth in the second half the second half of 2021.
ECONOMIC of the year. Confidence remains very
CONDITIONS SURVEY high, slipping only marginally from the The two ‘fear’ indices – measured by
(GECS) POINTS TO record high in the previous survey. As concerns that customers and suppliers
the roll out of vaccines gathers pace in may go out of business – both declined in
STRONG GLOBAL
many developed countries, so economic the Q2 survey. Fear that customers would
ECONOMIC GROWTH conditions are moving towards normal. go out of business is now close to its
IN THE SECOND HALF Monetary and fiscal policy remains long-run average while fear that suppliers
OF THE YEAR. supportive, especially in the US where the would do so edged slightly lower. These
extremely large fiscal stimulus is boosting measures confirm that the extreme
the world economy. The global orders uncertainty created by the COVID-19 crisis
index, which is less volatile than the has now fallen back towards more normal
confidence measure, also increased in the levels (Chart 2).
CHART 1: Global activity rebounding
Index %
0 6
-5 4
-10 2
-15 0
-20 -2
-25 -4
-30 -6
-35 -8
-40 -10
2013 2014 2015 2016 2017 2018 2019 2020 2021
GECS index: global orders World GDP (G20) growth y/y % (RHS)
Source: OECD (2021). ACCA/IMA (2012–21)
FEAR THAT CUSTOMERS CHART 2: The ‘fear indices’ approaching more normal levels
WOULD GO OUT OF Index
BUSINESS IS NOW 50
CLOSE TO ITS LONG-RUN
AVERAGE WHILE FEAR 40
THAT SUPPLIERS
30
WOULD DO SO EDGED
SLIGHTLY LOWER. 20
10
0
Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
GECS: index of concern about customers going out of business
GECS: index of concern about suppliers going out of business
Source: ACCA/IMA (2012–21)
4GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
There is a wide regional variation in For orders – the proxy for real economic Section 2 of this report assesses the
changes in confidence in the latest survey. activity – the biggest gain in Q2 came implications of buoyant housing markets
Large increases in Europe (both Central in North America, as the region powers for the global economy’s prospects.
and Eastern and Western) contrast with ahead, assisted by a massive US fiscal Last year house prices in many countries
significant falls in Asia Pacific and South stimulus. A jump in Western Europe increased, despite the worst global
Asia. To a large extent these changes points to economic recovery gathering recession in decades. This arose from the
reflect the effect of progress with vaccines momentum in the second half of the unique nature of the recession, caused by
(Europe) and increased COVID-19 year. Asia Pacific also reported increased health and not economic factors. Cuts in
infections (Asia Pacific and South Asia). orders, boosted by export demand. interest rates and government transfers
A theme of this report is the divergence Elsewhere there was little change in supporting household disposable incomes
in economic prospects between advanced orders, apart from in South Asia, where served to support confidence and lift
and emerging market economies. renewed lockdown measures have housing markets. Now that recovery is
Confidence fell back in North America, affected the economic outlook in the under way house price increases and,
but this came after a very large jump in near term (Chart 4). importantly, high levels of property
the Q1 survey (Chart 3). transactions are giving a major boost to
THERE IS A WIDE CHART 3: A varied regional picture on confidence
REGIONAL VARIATION Index points Change in GECS confidence index between Q1 2021 and Q2 2021
IN CHANGES IN 30
CONFIDENCE IN THE
20
LATEST SURVEY. LARGE
INCREASES IN EUROPE 10
(BOTH CENTRAL AND
0
EASTERN AND WESTERN)
CONTRAST WITH -10
SIGNIFICANT FALLS
-20
IN ASIA PACIFIC AND
SOUTH ASIA. -30
Central and W Europe Middle Global Africa North South Asia
E Europe East America Asia Pacific
CHART 4: Orders increase in all regions except one
Index points Change in GECS orders index between Q1 2021 and Q2 2021
20
15
10
5
0
-5
North W Europe Asia Global Africa Middle Central and South
America Pacific East E Europe Asia
5GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
consumer spending in many countries, and global GDP growth of around 6% By contrast EMs are lagging in
helping to lift GDP growth to a very rapid for the year as a whole looks likely. vaccinations, making them vulnerable
pace. This is to be welcomed as the more Swift and strong recoveries in the US to further waves of COVID infections.
quickly economies regain the levels of and China mean that the level of global Where recoveries do occur, their strength
output prevailing before the pandemic, activity is now back at its pre-pandemic is often curtailed by households and
the less long-term economic damage level of late 2019. But other economies companies with impaired balance sheets
or ‘scarring’ will occur. At the same time are lagging and a clear divergence is – in these countries governments having
though, this means that interest rates emerging between advanced economies lacked the capacity to provide support
may have to rise sooner than previously and emerging markets (EMs) (Chart 5). during earlier waves of COVID. There is
thought in order to address an incipient Advanced economies are benefiting a distinct possibility that EMs will suffer
inflation problem, slowing GDP growth from good progress on vaccinations, significant permanent damage to their
and cooling housing markets. which is allowing a return to more normal growth potential as a result of the COVID
economic conditions. Recoveries are crisis, whereas advanced economies, by
Section 3 gives a detailed view of then being further boosted by buoyant recovering quickly, will suffer negligible
global economic prospects. These have housing markets and excess savings or even no economic scarring.
brightened as this year has progressed accumulated during lockdowns.
ADVANCED ECONOMIES CHART 5: Divergence between advanced and emerging markets
ARE BENEFITING FROM % Deviation of output from pre-pandemic trend
GOOD PROGRESS ON 0
VACCINATIONS, WHICH
IS ALLOWING A RETURN -2
TO MORE NORMAL
ECONOMIC CONDITIONS.
BY CONTRAST EMs -4
ARE LAGGING IN
VACCINATIONS, MAKING -6
THEM VULNERABLE TO
FURTHER WAVES OF -8
COVID INFECTIONS. 2019 2020 2021 2022
World Advanced economies Emerging markets
Source: World Bank 2021
61. Global and regional analysis
This GECS points to a gathering In this survey, respondents were again
THIS GECS POINTS momentum in the global economy through asked when they expected substantial
the second half of this year. True, global economic recovery in their region (Chart
TO A GATHERING confidence dipped slightly in Q2, but this 7). Responses illustrate the divergence
MOMENTUM IN THE came after the biggest jump in confidence across the global economy with a majority
GLOBAL ECONOMY in the 10-year history of the survey in Q1. of respondents in North America now
THROUGH THE SECOND Moreover, the key activity indicators all saying that economic recovery is already
showed further improvement in the Q2 underway. By contrast over half the
HALF OF THIS YEAR. survey and are now in all cases above the respondents in Africa and South Asia
level in 2019 Q4, the period immediately do not expect recovery until 2022 at the
before the COVID-19 crisis began. The earliest. Surprisingly, this was also the
world economy overall has now recovered case in Asia Pacific. In Western Europe
to its pre-pandemic size. This has been the proportion expecting a much-delayed
driven by rapid growth in the US and economic recovery fell by 10 percentage
China, the two biggest economies; there points between the Q1 and Q2 survey,
are many economies that still have plenty underlining the recent improvement in the
of ground to make up (see Section 3). economic outlook in the region.
THE WORLD ECONOMY CHART 6: Global indices continue to regain ground
OVERALL HAS NOW Index GECS Global indices
RECOVERED TO ITS 30
PRE-PANDEMIC SIZE. 20
THIS HAS BEEN DRIVEN 10
BY RAPID GROWTH IN 0
THE US AND CHINA, -10
THE TWO BIGGEST -20
ECONOMIES; THERE ARE -30
MANY ECONOMIES THAT -40
STILL HAVE PLENTY OF -50
GROUND TO MAKE UP. -60
Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
Confidence index Orders index
Capital expenditure index Employment index
Source: ACCA/IMA (2012–21)
CHART 7: Expectations of economic recovery
When do you expect significant economic recovery in your economy?
% % responding for each time period
60
50
40
30
20
10
0
Already established Q3 Q4 2022
n Middle East n Asia–Pacific n North America
n Africa n South Asia n Western Europe
7GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
The GECS index of concern about In the Q2 survey respondents were This is the consensus across all regions,
operating costs increased in the latest again asked about inflation expectations where respondents expect inflation will
survey and is now at its highest level over the next five years (Chart 9). In all rise by up to three percentage points
since 2019 Q3. (Chart 8). The surge in regions at least two-thirds of respondents over the coming years.
commodity prices and transport costs is expect inflation to be slightly or much
feeding into higher input costs, especially higher than now. Since the Q1 survey
for manufacturers. It remains unlikely there has been a marked increase in
that rising costs will feed into a sustained inflation expectations in North America,
increase in consumer price inflation, but while in Western Europe expectations
long-term inflation expectations have have firmed around a modest increase
risen recently, notably in the US. in inflation over the next five years.
THE GECS INDEX OF CHART 8: Concern about operating costs
CONCERN ABOUT % GECS: percentage concerned about rising costs
OPERATING COSTS 60
INCREASED IN THE 55
LATEST SURVEY AND IS 50
NOW AT ITS HIGHEST 45
LEVEL SINCE 2019 Q3.
40
35
30
25
20
Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
Source: ACCA/IMA (2012-21)
CHART 9: Inflation expectations
What is your expectation for inflation compared with now over the next five years?
% % responding for each category
70
60
50
40
30
20
10
0
Slightly / much lower About the same Slightly higher Much higher
(+1 to 3 percentage points) (+>3 percentage points)
n Middle East n Asia–Pacific n North America
n Africa n South Asia n Western Europe
8GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
Regional picture
CHART 10: North America
NORTH AMERICA Index
In the latest survey confidence fell back 60
slightly after an extremely strong bounce
in the Q1 survey. Nonetheless confidence 40
remains very high. The orders and
employment indices both increased further 20
and reached their highest level on record.
0
Continued progress with vaccinations,
allowing economic conditions to return to
-20
normal, and the huge US fiscal stimulus are
driving recovery in the region. The North
-40
America GECS indices are consistent with
a very strong recovery through the second -60
half of 2021. Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
Confidence index Orders index
Capital expenditure index Employment index
Source: ACCA/IMA (2012-20)
ASIA-PACIFIC CHART 11: Asia-Pacific
The regional survey in Q2 shows the Index
unusual juxtaposition of a significant drop 30
in confidence with a healthy increase in 20
orders. Indeed, the orders index is now 10
at its highest level in over three years. 0
Exports are rising at a healthy clip, in line
-10
with a strong global recovery and the total
-20
orders index almost certainly reflects this.
The fall in confidence may be attributable -30
to rising COVID infections in some -40
countries, raising fears of restrictions that -50
would hurt domestic activity and tourism. -60
But the activity indicators in the GECS -70
suggest that overall economic growth will Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
continue at a healthy pace in the second Confidence index Orders index
half of 2021. Capital expenditure index Employment index
Source: ACCA/IMA (2012-20)
WESTERN EUROPE CHART 12: Western Europe
Western Europe recorded very strong Index
responses in the Q2 survey, having 60
lagged somewhat compared with other
regions in Q1. Confidence jumped by 40
the most in the history of the survey and
20
orders, employment and capital spending
balances all increased significantly. To a
0
large extent, the improved outlook is due
to a catch up in the EU vaccination rollout,
-20
which began slowly at the start of the
year. The recent lifting of social distancing -40
restrictions, notably in Germany and
France, as well as rising export demand is -60
set to fuel robust economic growth in the Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
second half of the year. Confidence index Orders index
Capital expenditure index Employment index
Source: ACCA/IMA (2012-20)
9GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
MIDDLE EAST
Confidence in the Middle East region CHART 13: Middle East
Index
increased modestly in Q2 as oil prices
40
continued to recover, exceeding $70 per
barrel for the first time since the start of
20
the pandemic. Activity indicators, such as
orders, also improved modestly. Some
0
countries in the region, Israel, UAE and
Bahrain especially, are well advanced in -20
vaccination plans. Improved oil revenues
and a relaxation of social restrictions -40
suggest that economic recovery will
continue in coming months. -60
-80
Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
Confidence index Orders index
Capital expenditure index Employment index
Source: ACCA/IMA (2012-20)
SOUTH ASIA CHART 14: South Asia
Confidence fell back in South Asia in Q2, Index
partially reversing the big jump in the 40
previous survey. Moreover, the region
is the only one in this survey to record 20
a fall in orders, albeit a modest one.
An exceptionally large surge in COVID 0
infections in India, the largest economy
-20
in the region, is probably behind this
weakness. In addition, there is a slow
-40
rate of vaccination throughout South
Asia. It is likely that across the region
-60
the legacy of the COVID crisis will be a
descent into extreme poverty for tens of -80
millions of people. Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
Confidence index Orders index
Capital expenditure index Employment index
Source: ACCA/IMA (2012-20)
AFRICA CHART 15: Africa
Confidence edged slightly lower in the Index
Q2 survey, but remains at a high level. 40
Orders recovered but only slightly and
Africa has not witnessed the rebound 20
in activity indicators seen elsewhere. A
0
third wave of COVID infections is now
underway while there has been negligible
-20
progress on vaccinations. Health and
fiscal resources are in many cases more
-40
stretched than in previous COVID waves.
There will be no strong recovery in many -60
African countries. Only commodity
exporters may see economic recovery, as -80
prices and demand rebound. Q2 2012 Q4 2013 Q2 2015 Q4 2016 Q2 2018 Q4 2019 Q2 2021
Confidence index Orders index
Capital expenditure index Employment index
Source: ACCA/IMA (2012-20)
102. Thematic analysis
Buoyant housing markets fuel were supported by government transfers
LAST YEAR THE GLOBAL recovery – and inflation? on a massive scale. In many countries,
generous wage subsidies and direct
ECONOMY SUFFERED Last year the global economy suffered
payments to households supported
its biggest recession in decades. At the
ITS BIGGEST RECESSION same time house prices increased in incomes and prevented a significant
IN DECADES. AT THE many countries – and so far, this year rise in unemployment rates, despite
SAME TIME HOUSE have continued to do so. In the UK and collapsing output. Lower interest rates
US, house prices are rising at double- and supported incomes underpinned
PRICES INCREASED consumer confidence and stimulated
digit annual rates, the fastest in around
IN MANY COUNTRIES – 15 years. But they are also on a strong housing markets.
AND SO FAR, THIS YEAR upward trend in many other countries,
Housing markets may now also be
HAVE CONTINUED including New Zealand, Canada and
boosted by the excess savings that
TO DO SO. South Korea.
many households accumulated during
Buoyant housing markets during lockdowns when spending was restricted
economic downturns are very unusual. but incomes held up. For example, savings
Traditional recessions invariably rates in the US and UK reached around
involve retrenchment by households as 30% of disposable incomes last year,
unemployment rises, interest rates are compared with a pre-pandemic average
increased and consumer confidence falls: of just under 8%. These savings are worth
the result is falling or at best stagnant several percent of annual disposable
house prices and much reduced housing incomes and it is likely that some fraction
market activity. But the 2020 recession will be deployed in housing markets.
was not a traditional one as it was driven
by a health emergency rather than by Buoyant housing markets look set to
economic fundamentals. persist for the rest of this year and into
2022. Consensus forecasts for house price
There are two main reasons why house increases this year are around 11% in the
prices increased during the severe 2020 US, 6% in the UK and 4% to 5% in the
recession. First, mortgage interest rates euro-zone. (In the UK, price gains may well
were cut as part of the monetary policy moderate through the second half as the
response to the onset of the COVID-19 stamp duty holiday is removed.) But should
pandemic – at a time when the global we be concerned about rising house
banking system had strong capital overall prices, are they in danger of becoming
and was able to support borrowing. a bubble and do they add to the risks of
Second, household disposable incomes higher inflation in the medium term?
BUOYANT HOUSING CHART 16: Nominal house prices rise in the 2020 recession
MARKETS LOOK SET Nominal house prices
TO PERSIST FOR THE % Percentage change on a year earlier
20
REST OF THIS YEAR AND
INTO 2022. CONSENSUS
FORECASTS FOR HOUSE
10
PRICE INCREASES THIS
YEAR ARE AROUND 11%
IN THE US, 6% IN THE
0
UK AND 4% TO 5% IN
THE EURO-ZONE.
-10
-20
Q1 2006 Q1 2009 Q1 2012 Q1 2015 Q1 2018 Q1 2021
US Euro-zone Canada UK
Source: FRED
11GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
Unsustainable? It is now debatable whether inflation may spending. This housing market effect is
Rapidly rising house prices raise the trend higher in a post-pandemic world a major influence in the strength of the
question of whether these prices where governments have very high levels rebound in economic activity now seen
are becoming in some measure of debt, the real value of which would in many advanced economies. This is to
unsustainable, resulting in a bubble that be eroded by a little more inflation. A be welcomed because the quicker pre-
will inevitably burst with harmful economic more pressing issue is whether booming pandemic levels of output are regained,
consequences. Valuation metrics such housing markets help fuel higher inflation, the less the long-term damage to the
as house price to income ratios point to resulting in increased interest rates that economy in the form of economic scarring
stretched valuations in the UK, but less result not only in slower economic growth, is likely to be. But beyond this point
so in the US (Chart 17). There is a strong but also bring an abrupt end to rising continued rapid expansion in consumer
case that house prices can be sustained at house prices. spending would ultimately put upward
a higher ratio to incomes. This is because pressure on inflation and trigger higher
interest rates have declined in recent years Housing markets, economic activity interest rates. A strong housing market
and are now at or close to record lows, and inflation both through and after a severe recession
The argument runs that the consequent House prices and housing market activity is one reason to expect higher interest
boost to affordability justifies higher house are often major channels through which rates sooner rather than later.
prices in relation to income. monetary policy affects the economy.
Rising house prices add to the perceived Finally, there is a technical point about
A major reason for the long-term decline wealth of homeowners and through this house prices and measures of inflation
in interest rates has been a permanent effect stimulate spending on goods and that is particularly relevant today. They
fall in inflation and inflation expectations services generally. A far more important do not usually feed directly into most
across many economies. To a large influence arises as a consequence measures of consumer price inflation. But
extent this has been due to independent of elevated levels of housing market measures of inflation do include rent (and
central banks pursuit of inflation targets. activity. In particular, increased housing often an estimate of the value of housing
Anchoring inflation expectations to target transactions result in more spending services provided by home ownership).
rates has allowed interest rates to fall to on consumer durables, such as white Both of these are (usually) highly positively
an apparently permanently lower level. goods, furniture, etc. lifting consumer correlated with house price inflation.
VALUATION METRICS CHART 17: House price to income ratios are rising
SUCH AS HOUSE PRICE House price to income ratio
TO INCOME RATIOS 9
POINT TO STRETCHED
VALUATIONS IN THE UK, 8
BUT LESS SO IN THE US.
7
6
5
4
3
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
UK US
Source: Office for National Statistics (ONS), FRED
12GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
But in the US there has recently been a to be renters than home owners, reducing this development is readily explained
divergence between house prices and demand and rents. As the US economy and it is to be welcomed. As advanced
rents with rental growth slowing at the recovers and unemployment falls, a economies recover buoyant housing
same time as house prices accelerated recovery in demand for rental properties markets will help return activity to pre-
(Chart 18). If rental growth were to pick up and rental growth is likely. Higher US pandemic levels by stimulating household
to reflect higher house prices this would interest rates would clearly have much consumption, especially on consumer
push inflation up by around 0.5 percentage wider implications elsewhere in the durables. This will help limit or even
points at a time when inflation has already global economy, especially indebted eliminate long-term economic damage,
spiked because of higher food and fuel emerging markets. so-called ‘scarring. But rapidly rising house
prices. (Rents have a weighting of over prices cannot persist indefinitely. Strong
30% in the US CPI basket.) Conclusion economic growth boosted by housing
It is very unusual to find rising global markets will ultimately require higher
Rental growth is likely to have been house prices during and immediately interest rates to prevent overheating and
negatively affected by the pandemic as after a severe recession. But in the significantly higher inflation. This will cool
those losing their jobs were more likely context of the 2020 COVID-19 recession, housing markets too.
IF RENTAL GROWTH WERE CHART 18: US house prices and residential rents diverge
TO PICK UP TO REFLECT US house prices and residential rents
HIGHER HOUSE PRICES, IT % 12-month percentage change %
20
COULD ADD AROUND 0.5 6
PERCENTAGE POINTS TO 15 5
ANNUAL US CONSUMER 10 4
PRICE INFLATION. 5 3
0 2
-5 1
-10 0
-15 -1
-20 -2
May May May May May May May May May May May May May May May May
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
Case-Schiller US house price index Residential rents in US CPI (RHS)
Source: FRED
133. The global economic outlook
The global economy – a strong But health and economic risks are
THE GLOBAL ECONOMY but uneven recovery considerable. For as long as COVID-19
remains widespread in parts of the
CONTINUES TO GATHER The global economy continues to gather
world, there is a chance that a vaccine
momentum and the second half of the
MOMENTUM AND THE year is likely to see strong GDP growth. resistant variant will emerge and spread,
SECOND HALF OF THE For 2021 as a whole global GDP growth forcing renewed lockdown measures
YEAR IS LIKELY TO SEE is likely to approach 6%, an exceptionally with consequent economic harm. There
strong rebound after the 3.5% fall last are also policy challenges: it is important
STRONG GDP GROWTH. that fiscal support is not withdrawn
year. But this growth will be concentrated
in advanced economies where levels of prematurely, potentially causing a
vaccination are now such that, in many setback to recovery in private demand.
countries, social distancing restrictions In addition, there are concerns among
can be relaxed and economic conditions some economists that the current spike
return to normal. But in many emerging in inflation will prove more long-lasting
markets vaccinations have made little than is currently assumed by most
progress, leaving them vulnerable to central banks, including the US Federal
renewed waves of COVID-19 and variants Reserve. The global economic outlook
with consequent restrictions that curtail would darken considerably if US interest
economic recovery. This pattern seems rates had to be increased significantly in
likely to persist well into 2022 (Chart coming months to deal with an incipient
19). In addition to rapid deployment of inflation problem.
effective vaccines, advanced economies
have been able to deploy massive fiscal US
support measures that have maintained The US economy is likely to grow by
household disposable incomes, supported around 7% this year as COVID cases
businesses, and prevented large rises decline and the vaccination roll-out
in unemployment. As argued above, continues apace. Already second quarter
buoyant housing markets have supported GDP growth is likely to be close to the 7%
consumer spending. This means that annual rate, helped by a strong rebound
as economic conditions move towards in consumer spending. This would imply
normalisation, economies are likely to that the level of activity had returned to
recover very rapidly. its pre-pandemic level seen at the end of
IN MANY EMERGING CHART 19: Advanced economies recover faster than emerging markets
MARKETS VACCINATIONS % Deviation of output from pre-pandemic trend
HAVE MADE LITTLE 0
PROGRESS, LEAVING
THEM VULNERABLE TO -2
RENEWED WAVES OF
COVID-19 AND VARIANTS
WITH CONSEQUENT -4
RESTRICTIONS THAT
CURTAIL ECONOMIC -6
RECOVERY.
-8
2019 2020 2021 2022
World Advanced economies Emerging markets
Source: World Bank 2021
14GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
2019. Growth may even strengthen during from exports. These projections imply fixed investment is 15% higher. For now,
the second half as employment continues that the level of output will return to its consumer spending growth is relatively
to recover. A return to more normal pre-pandemic level around the middle of modest, reflecting low vaccination
economic conditions is being boosted by next year. coverage. Retail sales are up 12.4% in the
a massive fiscal stimulus which by itself 12 months to May but this is flattered by
may add over three percentage points UK very weak sales a year ago; over the three
to GDP this year. In addition, despite The OECD now forecasts UK GDP growth months to May this year sales are up just
a recent spike in inflation, the Federal this year at 7.2%, faster even than the US. under 2%. After strong growth this year
Reserve is set to keep monetary policy The UK suffered a near 10% fall in output China is likely to slow to its pre-pandemic
very accommodative with interest rates last year so it has more ground than some growth rate of 5% to 6% a year. Already
close to zero. other countries to make up. The economy monetary and fiscal policy are becoming
is benefitting from an early and successful less supportive and moving towards a
Eurozone vaccination roll out that allowed the neutral stance.
The eurozone economy contracted gradual lifting of containment measures
by 0.6% in the first quarter. Another over the course of the second quarter. Emerging markets
wave of COVID infections early in the Already in April monthly GDP increased As Chart 19 illustrates there is a widening
year triggered renewed restrictions by 2.6%, boosted by the re-opening of gap in economic performance between
and lockdown measures. In addition, non-essential retail. The delay to July advanced economies and EMs. Having
confidence was undermined by a slow of the final lifting of social distancing suffered last year with lockdowns and a
start to the vaccination roll out. But restrictions is not likely to prevent a lack of fiscal capacity to support incomes,
over the last few months restrictions very strong second half of the year as EMs are now lagging in the deployment
in many countries have been eased economic conditions return to normal. of vaccines. This leaves them vulnerable
and vaccinations have gathered pace. A buoyant housing market and spending to rising COVID infections and renewed
While domestic demand remains below of accumulated savings will help to turbo restrictions. Chart 20 illustrates the
its pre-pandemic level, manufacturing charge the economy. Output is likely to difference in numbers of COVID cases
and exports have recovered strongly, have returned to its pre-pandemic level and vaccinations in advanced and
benefitting from the rebound in by the turn of the year. emerging economies as of May this year.
international trade. Economic growth The supply of vaccines to EMs should
in the second half of the year is likely to China increase significantly in the coming
gain momentum as consumer spending The Chinese economy is likely to grow months following commitments made
picks up. Fiscal policy will be supportive by around 8% this year, following a 2.3% by some advanced economies, notably
as distribution of the €750bn EU Next expansion in 2020. Booming exports and the US. Even if sufficient vaccines are
Generation Fund begins, with Italy and a major boost to infrastructure spending available, however, many countries will
Spain being major beneficiaries. For the are the key drivers of growth. Official face logistical difficulties and/or vaccine
year as a whole GDP growth is set to be Chinese data show exports in dollar terms hesitancy as obstacles to reaching so-
around 4.5% with a significant contribution 26% up in the 12 months to May and called herd immunity.
THE SUPPLY OF CHART 20: Distribution of COVID cases and vaccinate doses in advanced
VACCINES TO EMs economies and EMs
SHOULD INCREASE % of population Distribution of COVID cases and vaccinate doses (May 2021) % of population
SIGNIFICANTLY 5 20
IN THE COMING
MONTHS FOLLOWING
COMMITMENTS MADE
BY SOME ADVANCED 2.5 10
ECONOMIES, NOTABLY
THE US.
0 0
Estimated COVID-19 cases Vaccine doses (RHS)
n Emerging Markets n Advanced economies
Source: World Bank 2021
15GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
Overall EM growth this year is likely investment. For those with high levels of Higher Inflation – spike or upward
to be around 7%, a rebound after a debt denominated in foreign currency, trend?
contraction last year (World Bank 2021) a rise in US interest rates is a significant The inflation question has become more
But this figure is boosted by the inclusion downside risk. Chart 21 shows World Bank acute in recent months, notably as a
of China. With the exception of China, estimates of the economic loss across EM result of a rise in US inflation to a 13-year
virtually all EMs are likely to remain below regions up to 2022. high of 5% in May. In the UK inflation has
pre-pandemic growth projections for risen to 2.1% in May, up from just 0.7%
the foreseeable future. There are large The risk for EMs is that the loss of output earlier in the year. The issue is whether
regional differences in EM economic relative to their pre-pandemic trend rising inflation is a temporary blip caused
performance. For example, commodity becomes ‘locked-in’ because long-term by supply shortages as a result of the
exporters are benefitting from the surge growth potential is reduced, curtailing COVID-19 crisis or a more permanent
in prices that has coincided with the their ability to catch up with income rise in inflationary pressures caused by
global revival in demand. In addition, levels in developed economies. Jobs the massive monetary and fiscal stimulus
EMs with close trading links to the US or markets are crucial because persistently unleashed in response to the pandemic.
China will receive a boost from fast high levels of unemployment caused by
growth in those two economies this year. weak growth will reduce productivity as To a large extent, the rise in inflation will
By contrast those EMs that are the unemployed lose workforce skills. be temporary in our view, the result of
dependent on overseas visitors are set The COVID crisis has exacerbated this collapsing demand last year, followed by a
to face considerable headwinds for problem as school closures will have strong rebound that has resulted in rapid
some time as travel restrictions are likely damaged future workforce productivity by increases in commodity prices and supply
to be among the last COVID measures significantly reducing hours of schooling. shortages in some sectors. Volatility in
to be lifted. Meanwhile some EMs also Already the World Bank (2021) estimates oil prices has been especially high over
have excessive levels of external debt that over 100 million people have been the last year and this has had a material
that may limit the scope for future pushed back into extreme poverty as a effect on consumer price inflation in many
fiscal support and discourage foreign result of the COVID-19 crisis. economies. But other commodity prices
WITH THE EXCEPTION CHART 21: COVID effect differs across EM regions
OF CHINA, VIRTUALLY % Percentage loss of GDP compared with pre-pandemic projections by 2022
ALL EMs ARE LIKELY TO 0
REMAIN BELOW PRE-
PANDEMIC GROWTH -2
PROJECTIONS FOR THE
FORESEEABLE FUTURE. -4
-6
-8
-10
East Asia Pacific Europe and Latin America Middle East and Sub-Saharan South Asia
Central Asia and Caribbean North Africa Africa
Source: World Bank 2021
16GLOBAL ECONOMIC CONDITIONS SURVEY REPORT: Q2, 2021
such as those of food and industrial metals The rise in inflation can therefore be seen levels remain below pre-pandemic
have also been pushed higher in recent mainly as a welcome reflection of a strong levels everywhere suggesting that there
months (Chart 22). Of course, unless recovery in demand that has resulted is still considerable slack in jobs markets.
commodity prices continue to rise the in supply shortages and a rebound in For as long as this remains the case the
effect on inflation will be temporary. commodity prices, both of which are risks of sustained higher inflation are low.
likely to prove temporary. For now at But continued strong demand – boosted
There are other one-off effects feeding least, underlying inflationary pressures are by buoyant housing markets (see Section
into consumer prices, including generally subdued. Transition from this to 2) look likely to bring forward the time
shipping costs and a global shortage of a sustained rise in inflationary pressures when monetary stimulus is withdrawn.
semiconductors. The latter has resulted would require continued strong demand The US Federal Reserve has recently
in reduced car production, which in turn and tight jobs markets, resulting in a revised its guidance on when interest
has contributed to a surge in second hand classic wage-price spiral. Unemployment rates will rise bringing it forward to 2023,
car prices. (Used car prices accounted for rates have risen by much less than from 2024 previously. There is a distinct
a third of the rise in US inflation in May.) expected, given the scale of the 2020 possibility that this date will be revised
recession. Nevertheless, employment again, to 2022.
VOLATILITY IN OIL PRICES CHART 22: Global commodity prices rebound
HAS BEEN ESPECIALLY Index 2019 =100 $ per barrel
HIGH OVER THE LAST 170 100
YEAR AND THIS HAS 160 90
HAD A MATERIAL EFFECT 150 80
ON CONSUMER PRICE 140 70
INFLATION IN MANY 130 60
ECONOMIES. 120 50
110 40
100 30
90 20
80 10
70 0
Jan 2018 Jan 2019 Jan 2020 Jan 2021
Food Metals & minerals Brent oil (RHS)
Source: OECD 2021
TABLE 1: OECD GDP forecasts June 2021
% CHANGE ON A YEAR EARLIER* 2019a 2020a 2021f 2022f
World 2.7 -3.5 5.8 4.4
United States 2.2 -3.5 6.9 3.6
Euro-zone 1.3 -6.8 4.3 4.4
Germany 0.6 -5.3 3.3 4.4
France 1.5 -8.2 5.8 4.0
Italy 0.3 -8.9 4.1 4.0
Spain 2.0 -10.8 5.9 6.3
United Kingdom 1.3 -9.8 7.2 5.5
Canada 1.7 -5.4 4.7 4.0
Japan 0.7 -4.8 2.6 2.0
China 6.1 2.3 8.5 5.8
India 4.8 -7.4 9.9 8.2
a = actual, f = forecast
Source: OECD 2021
17References ACCA/IMA (2012-21) The Global Economic Conditions Survey (GECS) reports downloadable from, . OECD (2021) Economic Outlook June 2021, No Ordinary Recovery: Navigating the Transition, . World Bank (2021) Global Economic Prospects: A Strong but Uneven Recovery, . FRED Federal Reserve Bank of St Louis Economic Databank (website) . ONS House price to residence-based earnings ratio, . 18
Appendix I:
Economies covered by Q2 survey responses
NORTH MIDDLE ASIA CENTRAL SOUTH ASIA WESTERN AFRICA CARIBBEAN CENTRAL
AMERICA EAST PACIFIC & EASTERN EUROPE & SOUTH
EUROPE AMERICA
Canada Bahrain Australia Bulgaria Afghanistan Cyprus Cameroon Barbados Belize
Mainland Czech
Mexico Egypt Bangladesh Finland Ethiopia Bermuda Brazil
China Republic
Hong Kong
USA Iraq Hungary India Germany Ghana Grenada Columbia
SAR
Israel Indonesia Moldova Kazakhstan Greece Ivory Coast Guyana Costa Rica
Ireland,
Jordan Japan Poland Maldives Kenya Jamaica
Republic of
Korea,
Kuwait Romania Nepal Italy Liberia Puerto Rico
Republic of
Lebanon Malaysia Russia Pakistan Luxembourg Malawi St Vincent
New Trinidad &
Oman Slovakia Malta Mauritius
Zealand Tobago
Palestine Philippines Ukraine Netherlands Namibia
Qatar Singapore Spain Nigeria
Saudi Arabia Vietnam Switzerland Sierra Leone
United Arab
Turkey South Africa
Emirates
UK Sudan
Tanzania
Uganda
Zambia
Zimbabwe
19ACCA, IMA and the global economy
Global economic conditions continue to dominate business and political life.
To find out more visit: News and debates on economic issues are almost constantly the focus
of media attention. While most national economies are now growing once
www.accaglobal.com again, it is far from clear how sustainable this growth is or how long it will be
www.imanet.org before a sense of normalcy returns to the global economy.
ACCA and IMA have been prominent voices on what the accounting
profession can do to help turn the global economy around. Both bodies
have published extensively on a range of topics, from the regulation of
financial markets or the prevention of fraud and money laundering, to fair
value or the role of international accounting standards, to talent management
and the development of an ethical business culture.
ACCA and IMA aim to demonstrate how an effective global accountancy
profession contributes to sustainable global economic development; to
champion the role of accountants as agents of value in business; and to
support their members in challenging times. Both professional bodies
believe that accountants add considerable value to business, and never
more so than in the current environment.
Accountants are particularly instrumental in supporting the small business
sector. Small and medium-sized enterprises (SMEs) account for more than
half of the world’s private sector output and about two-thirds of all employment.
Both ACCA and IMA focus much of their research and advocacy efforts on
articulating the benefits to SMEs of solid financial management and reliable
financial information.
WHERE NEXT?
As countries around the world continue to consider strategies to promote
stability and stimulate growth, the interconnectedness of national
economies, and how they are managed and regulated, is now under close
scrutiny. The development of the global accountancy profession has
benefited from, and in turn contributed greatly to, the development of the
interconnected global economy. The fortunes of the two are tied. ACCA
and IMA will, therefore, continue to consider the challenges ahead for the
global economy, and focus on equipping professional accountants for the
uncertain future.
CONTACTS
For further information about the Global Economic Conditions Survey and
the series of quarterly reports, please contact:
Michael Taylor
Chief Economist, ACCA
+44 (0) 7892 704901
michael.taylor@accaglobal.com
Dr Raef Lawson
Vice President of Research and Policy
Institute of Management Accountants
+ 1 (0) 201 474 1532
rlawson@imanet.org
GECS-Q2-2021
ACCA The Adelphi 1/11 John Adam Street London WC2N 6AU United Kingdom / +44 (0)20 7059 5000 / www.accaglobal.com
IMA 10 Paragon Drive Suite 1 Montvale NJ 07645-1760 USA / +1 (201) 573-9000 / www.imanet.orgYou can also read
