Not all doom and gloom despite declining business confidence

The sad story comes as we face on-going political and economic uncertainty, caused by government investment falling to its lowest level since the start of 2016 and many developed markets still firmly in austerity mode. Additionally, pressures also rose from changes in the political landscape stemming from the recent US election, uncertainty over US/China trade developments and concerns over Brexit as well as forthcoming European Elections Globally, almost half (43 percent) reported worsening business confidence. But here in the Caribbean, the news isn’t all gloom and doom especially as the report indicates that the general picture is that US confidence is holding up.

Strong growth in the US is great news for our region as they are the Caribbean’s biggest trading partner.

Recent actions by their government to stimulate the economy have indicated that on the back of planned tax cuts and increases in to government spending, growth in the US will accelerate in 2017.

There’s been a marked improvement in the capital expenditure index, which can be attributed to expectations of a big increase in government infrastructure spending. Furthermore, the employment index also rose, which reflects the improving health of the US labour market.

With these marked results of success in the US market, this is great news, particularly for the Caribbean’s tourism sector. Visitors from the United States account for a large part of this Tourism in the region, with 14.3 million American visitors to the Caribbean in 2015 alone who all benefitted from a stronger US economy at the time.

The Caribbean economy has faced its share of trials in recent times; Trinidad and Tobago in particular, where the decline in energy prices over the past couple of years has also created significant problems, and this is reflected in the low overall level of confidence in the economy.

The fiscal deficit has ballooned, which has reduced the scope for a stimulus package, and the government expenditure index is very weak. The current account, meanwhile, has deteriorated sharply.

But the Caribbean’s banking sector also remains in good shape despite the economic downturn, while the collapse in the oil price has forced the governments to take steps to diversify the economy and explore a number of different revenue streams to provide for sustainable growth.

The US confidence will also positively impact on other tradedependent economies such as Taiwan, Hong Kong, Singapore and Vietnam as well as impact on capital investments for emerging markets such as South Africa, Colombia and Turkey. Yet emerging markets are also less dependent on the dollar than before, so we are unlikely to see a repeat of the crises of the 1990s.

In other emerging markets, the research has found that while the hard economic data from China has continued to improve as economic stimulus starts to take effect, which is also seen in Brazil. In India, ongoing implementation challenges in a demonetisation campaign may cause growth to slow in the short term, but long-term prospects, which have been boosted by recent economic reforms, remain positive.

But uncertainties remain in other parts of the world. In Europe, the resignation of Italian Prime Minister Matteo Renzi in December 2016, combined uncertainty over the outcome of elections in the Netherlands, France and Germany – which could lead to major policy shifts for regional trade and the future direction of the Eurozone – all contribute to a gloomy outlook going into 2017. In the UK, business confidence fell sharply ahead of Brexit negotiations. However, despite these concerns, the global economy may be on course for growth in 2017 as China responds positively to its economic stimulus programme and the US maintains a partial recovery.

The GECS findings highlight is that businesses and economic forecasters feel that 2017 could mark a new Age of Uncertainty for the global economy.

On a positive note, some of the underlying strengths of OECD and non-OECD economies suggest growth can be maintained and even improved over the next few years. However, there is no escaping that this is a challenging economic environment.

There are prospects of decent growth but risks remain.

One thing for certain is that an economic turnaround will not happen overnight. But it is vital for an economy and it is up to policymakers to demonstrate clear ideas to boost business confidence and avoid a further downward drift.

Accountants are crucial to steering the world’s businesses through these difficulties; after all Accounting is the backbone of the business financial world.

Through contributing to discussions about economic growth, managing finances and promoting good financial governance, they enable CFOs to successfully navigate businesses as they face tough times ahead and take advantage of challenging circumstances.

Fieldwork for the Q4 2016 GECS took place between November 24 and December 13, 2016 and attracted 4,551 responses from ACCA and IMA members around the world, including more than 350 CFOs.