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Economic hope, albeit fragile for the year ahead

WE will agree that seeing the back of 2020 was a great relief. Without doubt, 2020 was one of the most heartbreaking and tragic years in recent times, filled with immeasurable loss…and while the start of this year has seen much of last year’s leftovers remain, there is still hope for the remainder of 2021.

However, this of course, does not negate the immediate action needed to mitigate the impact the pandemic has had on health systems worldwide and the global economy.

WHAT ACTUALLY HAPPENED IN Q4 OF LAST YEAR?

This is the biggest economic shock we’ve witnessed in decades. Both the immediate and short-term outlook show confidence stalled in the latter part of last year, underlining uncertainty for the year ahead.

In ACCA and IMA’s (Institute of Management Accountants) most recent Global Economic Conditions Survey (GECS), accountants and financial experts say economic confidence in late 2020 had stalled and remains fragile heading into 2021.

The survey, which captures thoughts from over 3000 professionals worldwide who advise thousands of businesses, tracks confidence and fear indices. Findings revealed global orders, employment and capital investment indices recorded a further modest improvement – but still point to activity well below the pre-crisis level in 2019 Q4. Also the ‘fear’ indices show concern about customers and suppliers going out of business – edged lower in Q4 but remaining at an elevated level.

This clearly underlines the extreme uncertainty in the global economic outlook at the start of this year.

Looking ahead we should see recovery, but precisely when and how strong it will be is very uncertain. What is anticipated is we will see a weak start followed by a recovery gathering momentum through the second half. Much depends on the evolution of the coronavirus and variants relative to the progress of vaccination programmes, and there is great uncertainty surrounding these developments.

In reference to the survey, respondents seemed to agree with 50 per cent of those surveyed in Asia Pacific, North America and South Asia expecting sustainable recovery in the second half of this year. The most optimistic in this respect is the Middle East, where 54 per cent expect recovery during the first half of the year, which is a likely consequence of a recovery in oil prices.

WHAT WAS THE PICTURE IN THE CARIBBEAN?

Shelly-Ann Mohammed, head of ACCA Caribbean, said “The pandemic has forced millions into extreme poverty. Policy responses to the pandemic have left the public finances of most economies in a perilous state, with budget deficits in the range of 10 per cent to 15 per cent of GDP in many countries with debt-to-GDP ratios well over 100 per cent.

“All this presents a big test for policymakers in terms of when to withdraw policy support and when policy should be tightened to rebuild public finances. Policy mistakes would risk derailing economic recovery.

The year 2020 also showed the huge digital divide in the region as the private and public sector alike grappled with the challenges of a new reality. The need for digital transformation of the education sector has never been more apparent and must be included in any strategic and policy planning going forward,” Mohammed concludes.

THE ‘RESET’

The pandemic has shown how a collective global force is needed to address the impact it has had on national economies and health systems, as well as the environmental, social and technological challenges we currently face. At the end of January this year, global leaders set the agenda at Davos, pushing ‘The Great Reset’ button to build entirely new, sustainable foundations for our economic and social systems.

Despite the current backdrop, there is hope and a window of opportunity to shape recovery of the global economy. And hopefully this time next year, we’ll be telling a very different story.

Michael Taylor is the ACCA’s chief economist.