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Business Confidence Falls Sharply in Mideast, US

Looking ahead, there could be a further decline in sentiment within the Middle East as a result of higher interest rates–with local rates pegged to the US dollar
The sharp fall in confidence mirrors the oil price, which has fallen to below $45 a barrel in recent weeks due to fears of a further increase in US oil production.The sharp fall in confidence mirrors the oil price, which has fallen to below $45 a barrel in recent weeks due to fears of a further increase in US oil production.

Business confidence across the Middle East and US has fallen sharply in the last quarter and is now at its lowest level since the second quarter of 2016, according to the latest edition of the Global Economic Conditions Survey.

The Middle East region is also likely to face further challenges over the coming year, according to the quarterly survey of global CFOs and finance professionals, conducted by the Association of Chartered Certified Accountants and the Institute of Management Accountants, TradeArabia reported.

“The sharp fall in confidence mirrors the oil price, which has fallen to below $45 a barrel in recent weeks due to fears of a further increase in US oil production,” said Lindsay Degouve de Nuncques, head of ACCA Middle East.

“Looking ahead, we may experience a further decline in sentiment within the Middle East, as a result of higher interest rates–with local rates pegged to the US dollar. We are also likely to see a fall in oil output as countries reduce production to comply with the latest OPEC deal,” added de Nuncques.

The survey does, however, highlight the rise in government spending expectations which could act as an equilibrium to the declining sentiment. Austerity across the region, which was a constraint on growth in 2015 and 2016, has started to ease.

With the impending introduction of value-added-tax across the six (Persian) Gulf Cooperation Council Arab states (Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman), the short term decline in sentiment could be attributed to the transitional period which the region is currently going through, coupled with increasing interest rates and lower oil prices.

To further fortify the region, the government continues to focus on their diversification strategies which are expected to also aid returning confidence within the region next year.

 US Businesses Uncertain

The GECS report released Friday also found that business confidence in the United States has fallen and is now at its lowest level since the last quarter of 2016. However, the quarterly report–the largest regular economic survey of accountants in the world—found that the longer-term outlook is more positive with healthy levels of employment and consumer spending, PRNewswire reported.

“The drop in confidence comes amid challenges for the new administration in its first year in office; the planned stimulus package of tax cuts and infrastructure spending is likely to be delayed until 2018 at the earliest, as the government continues to focus on healthcare reform,” said Narayanan Vaidyanathan, senior business analyst at ACCA. “As a result, businesses are uncertain about the short term.”

He added, “However, the survey also shows that fundamentals driving longer term prospects still look encouraging: the employment index is relatively high and excluding the fall compared to the previous quarter, is above levels seen since the last quarter of 2015. Coupled with reasonable real wage growth, a longer-term uptick looks a realistic prospect.”

This expected growth in the US economy has had a positive result on several other economies covered by the GECS survey.

US companies cited rising costs as their main concern (45% of respondents), followed by decreased income (35%). The least cited reasons for concern were customers going out of business (14%) and suppliers going out of business (6%).

Raef Lawson, IMA vice president of research and policy, said, “A combination of this consumption growth driving recovery in the US and a gentler than expected slowdown in China has led to a fairly positive global outlook for this quarter.

The outlook for the global economy is promising, with all of the main economies set for decent growth over the next few years. Although a large-scale fiscal stimulus (in the form of tax cuts and increased spending on infrastructure) in the US is looking less likely, the US economy should continue to perform well, helped in large part by a strong employment market.

Fieldwork for the Q2 2017 GECS took place between June 2 and 29, 2017 and attracted 965 responses from ACCA and IMA members around the world, including more than 89 CFOs.

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