Economic optimism up; caution needed: Economist Jonathan Ashworth
The Association of Chartered Certified Accountants (ACCA) recently published the Global Economic Conditions Survey (GECS) for Q1 2024, reflecting a positive outlook for the economic confidence of finance professionals globally, including the Middle East region.
According to key findings from the GECS 2024 report, confidence in the Middle East's economy took a slight dip in the first quarter but remains strong overall (better than Q1 2023 report). The New Orders Index showed a significant rise, reaching its second-highest level ever. Employment also saw a modest boost, staying well above its usual level. However, the Capital Expenditure Index dropped slightly, though it remains above average. The overall economic picture for the region is quite positive, with Saudi Arabia's economy expected to drive growth in 2024.
Despite the positive outlook, geopolitical risks continue to pose a significant threat to the region's economic stability. A financial services employee in Qatar stated, "International and geopolitical instability implications are not understood or addressed." Another respondent from a UAE-based SME company reflected, "We import materials from across the world, so political instability causes price hikes. Increased inventory with high prices is a big issue. We cannot predict how long this situation will continue in the Middle East, but if prices fall suddenly, we will incur huge losses."
In an exclusive interaction with People Matters, ACCA’s Chief Economist, Jonathan Ashworth, shared insights regarding the findings on the Middle East region compared to the global index.
Here are the edited excerpts:
Could you share your key insights from the GECS Q1 2024 report for the Middle East? How do you foresee the economy of the region throughout this year?
In the Middle East, economic confidence among accounting and financial professionals fell slightly, but remained above its historical average, and there was a decent increase in the forward-looking New Orders Index, which is at its second highest level in the survey’s history. The key indicators remain indicative of a pretty encouraging picture for the Middle East, although a major escalation of the ongoing conflict in the region is clearly an important downside risk for businesses over coming quarters.
What key factors do you believe have contributed to this positive trend? What is the outlook for financial professionals globally?
Several factors likely help explain the notable rise in confidence in Asia Pacific, including the ongoing resilience of the important US economy, some signs of improvement in China’s economy outside of the housing sector, and more encouraging signs about the health of the global economy and manufacturing sector. Growing optimism that the Japanese economy could finally be emerging from its decades long battle against deflation may also potentially have been a factor.
In Western Europe, the euro area and UK economies returned to growth in the first quarter of 2024, after experiencing technical recessions in the second half of last year. Both economies have benefitted from sharp falls in inflation, which, alongside tight labour markets and fast pay growth, has meant that households are now benefiting from positive real income growth after the very sharp squeeze in recent years. Signs of improvement in the global economy may also have lifted sentiment in Europe.
Looking more broadly, the easing in global financial conditions since the latter part of 2023, aided by the US Federal Reserve’s pivot towards monetary easing, has likely supported growth in various economies and helped boost confidence among financial professionals.
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Despite the optimistic outlook, concerns about rising operating costs remain prevalent. How do you assess the impact of these cost pressures on businesses, and what strategies do you recommend for organisations to mitigate these challenges effectively?
Concerns among global accountants about increased operating costs rose in the first quarter of 2024, after moderating in the previous five quarters since their peak in the third quarter of 2022. Cost concerns remain very elevated by historical standards. The rise in cost pressures was driven by developing economies, with cost concerns rising in Asia Pacific, South Asia and Africa, but easing in Western Europe and North America. Cost pressures also eased in the Middle East, the only region where they are not elevated by historical standards.
Increased operating costs could weigh on corporate margins if firms are not able to pass on price increases to their customers. Meanwhile, with cost pressures still elevated in most regions, central banks around the world need to proceed very cautiously with any monetary easing.