The latest Global Economic Conditions Survey (GECS) of Q2 2021 by IMA® (Institute of Management Accountants) and ACCA (the Association of Chartered Certified Accountants) finds “swift and strong” recovery in global confidence in the second quarter of 2021, returning global activity to the pre-pandemic level of late 2019.

The GECS, the largest regular economic survey of more than 1,000 senior accountants and finance professionals from around the world, has consistently captured the true scale of the global recession caused by the coronavirus pandemic, tracking the drop in confidence since the beginning and a new outlook in confidence triggered by the combined effects of vaccines and the fiscal stimulus.

The full report is available on the IMA website. 

This GECS points to the global economy gathering momentum through the second half of this year. While global confidence dipped slightly in Q2, this occurred after the biggest jump in confidence in the 10-year history of the survey last time.

At the same time, there is a divergence in recovery between advanced and emerging economies. Advanced economies are benefiting from rapid progress on vaccinations and spending of accumulated savings that are allowing a return to more normal economic conditions. Yet, many emerging market economies continue to face economic weakness, as limited vaccinations allow further waves of COVID infections. The GECS highlights this divergence with buoyant regional surveys in North America and Europe but much weaker ones in South Asia and Africa.   

Among the other key findings:

  • The key global activity indicators, such as orders, recorded further improvement in the Q2 survey and are now above the level in Q4 2019, the period immediately before the pandemic began. 
  • Overall, the world economy has now recovered to its pre-pandemic size. This has been driven by rapid growth in the United States and China, the two biggest economies; there are many economies still with plenty of ground to make up.  
  • The two “fear” indices—measured by concern that customers and suppliers may go out of business—both declined in the Q2 survey, confirming that the extreme uncertainty created by the COVID-19 crisis has fallen back towards more normal levels.  
  • The GECS index of concern about operating costs increased in the latest survey and is now at its highest level since Q3 2019. But concern remains below the level that would point to a sustained big rise in inflation. 

Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research and policy, noted that for 2021 as a whole, global Gross Domestic Product (GDP) growth is likely to approach 6%, an exceptionally strong rebound after the 3.5% fall last year. This growth will be concentrated in advanced economies where levels of vaccination are now such that social distancing restrictions can be relaxed and economic conditions return to normal. This is a global pandemic, which needs global action to safeguard the health of populations and their economies – in the short and long term. For IMA and ACCA, there is a clear link in doing this to the UN Sustainable Development Goals (SDGs), specifically Goal 1 to end poverty everywhere and Goal 8 for decent work and economic growth.

“In addition to rapid deployment of effective vaccines, advanced economies have been able to deploy massive fiscal support measures that have maintained household disposable incomes, supported businesses, and prevented large rises in unemployment. Buoyant housing markets have supported consumer spending. This means that as economic conditions move towards normalization, economies are likely to recover very rapidly,” Lawson said, yet noting that, “In many emerging markets, vaccinations have made little progress, leaving them vulnerable to renewed waves of COVID-19 and variants with consequent restrictions that curtail economic recovery. This pattern seems likely to persist well into 2022.” 

Compared with the Q1 2021 survey, there has been a marked increase in inflation expectations in North America, while in Western Europe, there are expectations of a modest increase in inflation over the next five years.

“To a large extent, the rise in inflation will be temporary, the result of collapsing demand last year, followed by a strong rebound that has resulted in rapid increases in commodity prices and supply shortages in some sectors,” said Michael Taylor, chief economist at ACCA. “The rise in inflation can therefore be seen mainly as a welcome reflection of a strong recovery in demand that has resulted in supply shortages and a rebound in commodity prices, both of which are likely to prove temporary. For now, at least, underlying inflationary pressures are generally subdued.”

As advanced economies recover, buoyant housing markets will help return activity to pre-pandemic levels by stimulating household consumption, especially on durables. This will help limit or even eliminate long-term economic damage, so-called “scarring.” But, rapidly rising house prices cannot persist indefinitely. Strong economic growth boosted by housing markets will ultimately require higher interest rates to prevent overheating and significantly higher inflation.

Lawson cautioned, however, that “health and economic risks are considerable. For as long as COVID-19 remains widespread in parts of the world, there is a chance of a vaccine-resistant variant emerging and spreading, forcing renewed lockdown measures with consequent economic harm.”

Fieldwork for the Q2 2021 survey took place between June 1 and June 15, 2021, and attracted 1,100 responses from ACCA and IMA members, including more than 100 CFOs. 

For more information, visit the IMA website.