The latest figures from the Global Economic Conditions Survey (GECS), the quarterly survey by IMA^® (Institute of Management Accountants) and ACCA (Association of Chartered Certified Accountants) among more than 1,000 CFOs and accountants, show the scale of the current economic recession through the eyes of leading financial professionals.

Watch this video presentation posted on LinkedIn by Alain Mulder, senior director of Europe operations at IMA, as he discusses the results, including:

• In the fourth quarter of 2020, financial professionals had positive reviews of the economy, but because of the virus, a sharp decline in economic results will happen, especially in Europe.
• The anxiety index remains high. The record low in bankruptcies in the Netherlands distorts the underlying, current economic sentiment.
• The entire European economy has contracted by 7.5% compared to a year earlier. That is more than the entire world economy, which is counting on a decline of 4.5% in output. The Netherlands compares well in this research, compared to Southern European countries, which are more dependent on tourism.
• In the second half of 2021, Europe will see a W-shaped recovery in the economy. This symbolizes the W-shape in the economic growth chart.
• This recovery may be somewhat hampered by weak consumer confidence and hidden unemployment, although consumer spending is likely to increase suddenly if consumers' accumulated "lockdown" savings are suddenly deployed.

The following are some further details:

Economic Outlook

In the fourth quarter, despite Brexit and the pandemic, finance professionals had positive ratings that reflected confidence in the economy. After historical declines in GDP, more was stronger than expected, giving confidence. Positive trends made Europe see this as one of the strongest increases in business orders in the fourth quarter of 2020.

This climb was ongoing until tighter lockdowns were announced in Europe at the end of the year. Researchers, therefore, expect a sharp decline in economic results, mainly in Europe, due to these developments in the fourth quarter. And despite a record low number of bankruptcies in the Netherlands in 2020, the anxiety index among finance professionals, reflecting concerns that customers and suppliers will go bankrupt, remains high.

“The fourth quarter of 2020 initially presented enormous optimism among many of the finance professionals surveyed. Unfortunately, a strong resurgence of the virus will have a significant impact on economic activity in early 2021,” said Mulder.

The entire European economy is 7.5% smaller than in the same period a year earlier. That is more than the entire world economy, which expects a decline in output of 4.5%. The largest decline is in Southern European countries that rely heavily on tourism. Although the European Central Bank (ECB) has decided to expand its asset purchase program and extend maturity, financial professionals do not expect growth this year strong enough to return to the level of 2019 economic activity.

While the pandemic is leaving a heavy mark on the economy, the researchers expect at least that the UK's new trade relationship with the EU for this year is unlikely to have a significant impact on GDP, as demand is already weak.

W-shaped Recovery

Finance professionals do believe that 2021 will be the year of recovery. In the second half of 2021, we will see a W-shaped recovery in Europe. This may be hampered to some extent by weak consumer confidence, but unemployment is rising sharply in many countries. In this scenario, economic activity will be 2% below pre-crisis levels by the end of 2022.

Global GDP Growth Forecast

There is a significant degree of hidden unemployment in the EU that has yet to be revealed. The high unemployment rates are likely to persist into 2022. The negative side effects of this will have an impact on growth potential in the long run.

Perhaps recovery can be stimulated by the use of a large stock of accumulated savings that have been built up during lockdowns with consumers. In addition, the European Recovery Fund, worth approximately €750 billion, is expected to begin distributing resources in the second half of 2021 and is expected to be fully committed by 2023.

While there is consensus that fiscal austerity is out of the question until a sustainable recovery takes place, there is no doubt that at some point a tightening of fiscal policy will be necessary. Judging when and how this takes place will be a big test for policymakers.

For more information, visit the IMA website.