The Middle East is the highest scoring region in terms of confidence and orders, in spite of worries about escalating operating costs, according to the Global Economic Conditions Survey (GECS) for the first quarter of 2022.
The survey was conducted by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA).
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GECS’s index of concern around operating costs jumped once again in the first quarter of this year by nine percentage points. It is now at its highest recorded level at 62 percent. The dramatic rise over the past 12 months highlights the impact of rising energy and transport costs caused by supply chain shortages and disruption.
Despite these concerns around operating costs, the Middle East survey for the first quarter recorded the biggest rise of all major regions in both confidence and orders, with its GECS confidence index score increasing by 25 points between Q4 2021 and Q1 2022. Much of this can be attributed to oil price movements which increased dramatically since the start of 2022. This jump in confidence in Q1 also reflects the waning of the ‘omicron effect.’
The Q1 survey however highlighted that global confidence and orders were little changed, up by four points to +9 for confidence and by two points to -3 for orders. Other economic activity indicators, such as employment and capital spending improved. Overall, the Q1 survey maintains the trend of modest overall growth through to the middle of the year, well down from the strong post-pandemic recovery of 2021. The level of orders in advanced regions remains above that of emerging regions, as it has throughout the post-pandemic recovery.
GECS’s two ‘fear’ indices – measured by concern that customers and suppliers may go out of business – were little changed in the Q1 survey, down by two points and one point respectively. Both indices have seen a step-down from the extreme levels seen in 2020 however they are still above pre-pandemic levels.
ACCA’s Chief Economist Michael Taylor commented: “The start of the year has seen a steep increase in the price of oil, gas, wheat, and other commodities, propelling inflation to even greater heights, squeezing real incomes and slowing economic growth. Compared with previous forecasts, global growth may be reduced by as much as one percentage point this year, to around 3.25 percent.”
Loreal Jiles, Vice President of Research and Thought Leadership at IMA, added: “We asked respondents to name their two biggest economic risks: 51 percent highlighted supply chain disruption and 50 percent underlined the risk of renewed COVID restrictions, 40 percent of respondents also highlighted rising interest rates as a risk, compared to 26 percent with the Q4 survey. The Middle East’s exemplary rise in confidence attributed to movements in the oil price is a welcome trend yet concerns about operating costs remain significant.”
Both ACCA and IMA warn of the risk of policy mistakes. Jiles explained: “Removing the exceptional policy ease introduced to mitigate the effects of the pandemic was always going to be tricky. Over the last year, supply shortages and geopolitical turmoil have resulted in a stagflation scenario reminiscent of the 1970s which was a time of weak economic growth combined with high rates of inflation.”
“Central banks in advanced economies face a difficult judgment call that could result either in overly-tight policies that may lead to recession or excessively lenient policies embedding inflation and inflation expectations. Policies need to be thought through and stress tested very carefully in the days, weeks, and months ahead,” concluded Taylor.
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