The latest Global Economic Conditions Survey (GECS) from IMA® (Institute of Management Accountants) and ACCA (the Association of Chartered Certified Accountants) found that global economic confidence dipped in the second quarter of 2019, with confidence in the U.S. dropping significantly.
GECS is the largest regular economic survey of accountants around the world, in terms of both the number of respondents and the range of economic variables it monitors. You can read the full report here.
“Taken together, global confidence and orders suggest weakening global growth in the second half of the year. But fears of a severe global economic collapse or recession are unfounded in current circumstances,” the report notes.
The report found that confidence in the U.S. fell sharply in Q2 2019, to its lowest level in eight years. U.S. economic confidence was hit by the resurgence of trade tensions as tariffs were increased to 25% on a range of Chinese imports and – for a while – threatened on Mexico. Additionally, orders fell too and are at the lowest level since late 2016.
Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research and policy, said, “This month, the U.S. economy will complete 10 continuous years of economic growth, the longest such period in more than 150 years. This is a remarkable record, even if the pace of growth over this period has not been spectacular. But there are some significant structural changes that will affect the performance of the economy and policy over the longer term.”
“The message continues to be one of slowing Gross Domestic Product growth this year, with recession highly unlikely either this year or next. An almost certain reduction in U.S. interest rates in the second half of this year will help sustain growth,” said Warner Johnston, Head of ACCA USA.
The quarterly report features a special section exploring three structural changes: the U.S. jobs market, oil sector, and public sector finances.
In terms of the performance of the jobs market, unemployment has fallen to a near-50-year low of 3.7% in June. Over the last 10 years, since the economy emerged from the Great Recession of 2008-09, the U.S. has created over 21 million jobs, an increase of 16.5%.
But the report notes a structural shift in the relationship between the unemployment rate and wages growth. With the lower unemployment rate, there has come a “modest” revival in wages growth, perhaps due to a greater share of total income accruing to capital rather than labor. Rising inequality may also be a factor in overall wages growth, as wages for the relatively few at the top of the earnings distribution grow much faster than for the vast majority of workers.
“The U.S. economy remains the largest and, in many respects, the most successful in the world,” Lawson said. “But there are structural changes that represent challenges for policymakers. Perhaps the greatest concern arises from the level of public sector debt which is on track to reach its highest level since 1946. More positively, the U.S. can operate at lower levels of unemployment without generating upward pressure on inflation. Finally, the resurgence of the oil industry and the emergence of the U.S. as a net exporter of oil is a positive for the economy. But this requires an adjustment in policy responses and may introduce greater volatility to the economic cycle.”
In other Q2 2019 findings, global growth is slowing as 2019 progresses but that slowdown is not yet precipitous or indicative of imminent global recession. The major downside risk continues to center on trade tensions and their potential to have much wider effects beyond the U.S. and China. In recent months, there has been a shift in the stance of major central banks, notably the U.S. Federal Reserve.
Fieldwork for the Q2 2019 GECS took place between May 31 and June 13 and attracted 1,161 responses from ACCA and IMA members around the world, including more than 100 CFOs.
For more information on the Global Economic Conditions Surveys, visit IMA's website.