Businesses continuing to benefit from aggressive rate cuts: ACCA report

A global report of the Association of Chartered Certificated Accountants (ACCA) revealed that businesses in Pakistan are continuing to benefit from a series of aggressive rate cuts by the central bank as well as the start of construction of the Pakistan-China Economic Corridor (CPEC).
According to findings of the Global Economic Conditions Survey Report (2016) by ACCA, there was a marked drop in confidence in Pakistan in the third quarter of 2016. On the positive side, businesses are continuing to benefit from a series of aggressive rate cuts by the central bank as well as the start of construction of the CPEC, a series of huge infrastructure projects worth nearly US $50 billion that are designed to transform the country's substandard infrastructure. But while the short-term economic outlook remains positive, there is growing concern over how Pakistan will cope now that its IMF support has come to an end.
The latest Global Economic Conditions Survey from the ACCA (the Association of Chartered Certified Accountants) and the IMA (Institute of Management Accountants) suggests that confidence in Pakistan has fallen in the fourth quarter, but improving economic outlook offers optimism for the year ahead. It is the largest regular economic survey of accountants in the world, in both the number of respondents and the range of economic variables it monitors. Its main indices are good predictors of GDP growth in themed countries and its daily trend deviations correlate well with the VIX or 'fear' index, which measures expected stock price volatility.
Fieldwork for the fourth quarter of 2016 GECS took place between November 24 and December 13, 2016 and attracted 4,551 responses from ACCA and IMA members around the world, including more than 350 CFOs. In this quarter's report, the research suggests that confidence in Pakistan has fallen in Q4 but improving economic outlook offers optimism for the year ahead. The survey of over 4,500 finance professionals and business leaders worldwide has found that while the economic outlook has improved slightly in the US and China over the last quarter, the Eurozone has hit its lowest confidence levels since 2012.
Foreign-exchange reserves have been rebuilt over the past few years, which reduce the chances of a balance of payments crisis. However, there is concern that fiscal discipline may start to slip without the IMF to monitor progress, the report said. A key reason for the drop in global confidence in fourth quarter could be the reported fall in government spending index, which fell to its lowest level since the start of 2016 reflecting that major developed markets remain firmly in austerity mode. The global survey also showed a slight fall in the capital expenditure index, as well as a drop in the investment opportunities index.
Since Donald Trump has confirmed that the US will not ratify the Trans-Pacific Partnership (TPP - a 12-country free trade agreement), the demise of the TPP has potentially significant implications for the US' influence throughout the region, and China could play a more assertive role. A China-backed free-trade agreement called the Regional Comprehensive Economic Partnership (RCEP - a free-trade deal for Asia that excludes the US) now has renewed impetus, the report added.
The survey of over 4,500 finance professionals and business leaders worldwide has found that while the economic outlook has improved slightly in the US and China over the last quarter, the Eurozone has hit its lowest confidence levels since 2012. The ACCA argues the fall in confidence has been caused by government investment falling to its lowest level since the start of 2016, with many developed markets still firmly in austerity mode; changes in the political landscape stemming from the recent US election; uncertainty over US/China trade developments and concerns over Brexit as well as forthcoming European elections.
Almost half (44 percent) of respondents expressed concern over falling income due to low levels of government expenditure, with another 43 percent reporting worsening business confidence.
Commenting on the findings, Mohammad Sajid Khan, Head of International Development for ACCA says that Pakistan's outlook is improving. While sentiment has fallen in Pakistan in Q4 there are positive signs for the economic outlook. The capital expenditure index is firmly in positive territory, which reflects the impact of interest rate cuts over the past few years and the boost offered from the Pakistan-China Economic Corridor. The country is in a much more stable position than it has been for some time, with the fiscal benefits of the IMF loan deal still being felt after its conclusion.
Faye Chua, Head of Business Insights at ACCA said the survey highlighted a downbeat global mood that "current political uncertainty is clearly having an impact on global business confidence. In the US the Trans-Pacific Partnership is unlikely to be ratified while likely restrictions on trade with key markets including China and Mexico are also major factors here. In Europe, uncertainty over the outcome of elections in the Netherlands, France and Germany - which could lead to major policy shifts for regional trade and the future direction of the Eurozone - all contribute to a gloomy outlook going into 2017. However, it is not all bad news." Despite these concerns, the global economy may be on course for growth in 2017 as China responds positively to its economic stimulus programme and the US maintains a partial recovery.