Magazine article Strategic Finance

CFOs: MANAGING UNDER UNCERTAINTY IN 2018: The Big Picture Is Rose-Colored for Some: The Global Economic Growth Story for 2018 Is Again a Moderate but Steady Increase in GDP

Magazine article Strategic Finance

CFOs: MANAGING UNDER UNCERTAINTY IN 2018: The Big Picture Is Rose-Colored for Some: The Global Economic Growth Story for 2018 Is Again a Moderate but Steady Increase in GDP

Article excerpt

As the old saying goes, slow and steady wins the race.

Organisation for Economic Co-operation and Development (OECD) predictions show year-over-year increases in world gross domestic product (GDP) of 3.7%, up slightly (0.1%) from last year. The outlook for the G20 overall is in the same territory, while China and India will continue to power on at rates of 6.6% and 7.0%, respectively. In contrast, growth in the Euro area (Germany, France, and Italy) and the United Kingdom is expected to slow in the coming months to a projected 2.1% and 1.2%, respectively, while the United States, which has passed major tax reform, will chug along at a rate of 2.5%.

In the Euro area, despite sluggish growth, the unemployment rate fell to 9.1% in July 2017, the lowest rate since 2009, according to an OECD interim economic outlook report issued in September 2017, "Short-term momentum: Will it be sustained?" The OECD attributes this lower rate to stronger consumption and investing in the region as well as healthy export growth. In Germany, growth in the first half of 2017 was stronger than anticipated, business confidence is strong, and investment in machinery and equipment has gathered pace. In the U.K., however, GDP growth is facing headwinds due to uncertainty over the outcome of Brexit negotiations, which I'll talk more about later on.

In the U.S., growth in 2018 is expected to be supported by more robust consumer spending and business investment, followed by stronger pay and lower wage inflation, meaning Americans' dollars will go further. Yet when it comes to the impact of fiscal easing and regulatory reform on the U.S. economy, it's anybody's guess-although, domestically, businesses are reportedly very optimistic.

Canada was the winner of the growth race among members of the G7 in 2017, leading with a 3.2% year-over-year increase in real GDP fueled by strong consumer demand (housing, most notably) and a robust auto sector. But the hoopla may be short-lived: Canada's growth prospects are expected to moderate in 2018, keeping pace with the U.S., its major trading partner to the south.

That's the big-picture story for 2018. But against this backdrop lies a complex subtext resulting in a broad range of strategy scenarios for senior finance executives and a variety of important issues that will be keeping them up at night. Nevertheless, what the main concerns are for the coming year depends on which person you ask.

Global Confidence Is Rising

The most recent Global Economic Conditions Survey (GECS), carried out jointly by ACCA (Association of Chartered Certified Accountants) and IMA[R] (Institute of Management Accountants), provides some answers. (The GECS is the largest regular economic survey of accountants around the world in terms of both the number of respondents and the range of economic variables it monitors.) The GECS for the fourth quarter of 2017 attracted 4,011 responses from ACCA and IMA members around the world, including more than 250 CFOs. (See http://bit.ly/2ET0dxW.)

Results show that, on the whole, accountants around the world were regaining confidence in the global economy although they weren't bullish yet. As expected, confidence was relatively high in South Asia, Africa, and Asia Pacific, but the picture was dramatically different in the U.K. Brexit, of course, is running in the background, causing insecurity on many fronts. According to 49% of the ACCA/IMA respondents, the biggest concern for U.K. finance executives is rising costs. The pound's falling value, which has resulted in increased import prices, is the culprit. Finance executives also believe that the risks created by Brexit far exceed the opportunities as per the third-quarter 2017 survey.

Brexit Still a Worry

Companies reliant on European Union (EU) workers, such as food manufacturers, hotels, and restaurants, are expected to be hit the hardest should post-Brexit immigration restrictions come into force. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.