Global governance

World economic climate continues to decline, according to latest ICC/Ifo survey

  • 15 November 2012

The health of the world’s economy continues to deteriorate as insufficient demand, unemployment and the on-going debt crisis in Europe undermine recovery efforts, results of the ICC-Ifo World Economic Survey (WES), released today, revealed.

Based on the findings from the survey, which assessed the views of 1,156 experts in 124 countries across the globe, the World Economic Climate Indicator fell for the second consecutive quarter, dropping from 85.1 to 82.4 in Q4. Although the dip is less pronounced than in the previous quarter, it nonetheless reveals that the hopes of an economic recovery seen in Q2, when the climate indicator stood at 95, have suffered a further setback.

The results of the survey, conducted by the Munich-based Ifo Institute for Economic Research and the International Chamber of Commerce (ICC), show the World Economic Climate Indicator in Q4 2012 as standing well below the long term average of 96.7 (1996 – 2011).

This latest fall in the World Economic Climate Indicator is due to WES experts’ less favourable assessments of the current state of the economy and lower expectations for the six-month economic outlook.

“By late 2012, economic activity lost momentum in nearly all regions of the world,” said ICC Secretary General Jean-Guy Carrier. “A clear factor in this is the on-going debt crisis in the Euro area, which governments will have to get to grips with in order to restore investor confidence.”

Europe hampered by public debt

The global economy continues to be affected by the struggling economies in the Euro area where the WES survey showed the economic climate indicator fell from 88.9 to 81.7 in Q4. With the debt crisis continuing to blight the economies of member states like Greece, Portugal and Spain, the indicator for the Euro area currently stands well below the long term average of 109.0 (1996 – 2011).

WES experts pointed to public deficits, insufficient demand and unemployment as the chief causes of the Euro area’s on-going economic difficulties. With WES experts lowering their economic expectations for the next six months they suggest there is no sign of any light at the end of the tunnel for the Euro area.

In North America, the fall in the economic climate indicator was less marked than in Europe, owing largely to more positive expectations for the US economy. According to the survey, Asia’s economy also continued a downward trend seen in Q3, though at a slower rate, with the economic climate indicator falling from 83.3 to 81.6.

Latin America bucks the trend

Latin America was the only major continent to go against the trend, with the economic climate indicator rising in the fourth quarter of 2012 due to WES experts’ improved expectations for the economy for the next six months.

Gernot Nerb, Ifo Director of Business Surveys, said the strength of the indicator in Latin America can partly be put down to the increased competitiveness of the region’s currencies.

“The positive signals from Latin America may be partly explained by the fact that some of the region’s currencies are no longer overvalued and some are even undervalued, compared to the US dollar, the euro, the pound and the yen,” said Mr Nerb. “This helps somewhat to increase international price competitiveness.”

“On top of this, the interregional trade in Latin America appears to have picked up somewhat which may also explain part of the improvement of the business climate in this region,” he added.

Inflation intensifies

World-wide average inflation estimates for 2012 increased slightly in Q4 to 3.6% up from the 3.4% in the previous quarter, the WES survey showed. The slight increase only brings inflation expectations back to the level expressed in the WES survey for Q2. However the upward revision was restricted to Western and Eastern Europe, as well as Oceania and the Near East. In Asia, North America and Africa, inflation expectations for 2012 remained unchanged and even dropped in Latin America and CIS countries.

Anti-corruption training a key issue among experts in Africa

This quarter’s ICC special question asked the economic experts whether they think stronger emphasis on ethics and compliance training for business in their respective country can help improve economic productivity and attract more foreign investment. The results differed markedly according to the region with 90% of respondents in Africa agreeing, compared to 13% in Europe and 5% in North America.

About the World Economic Survey

The World Economic Survey assesses worldwide economic trends by polling transnational and national organizations worldwide on current economic developments in their respective countries. The October ICC/Ifo survey polled 1,156 economic experts from business and academic institutions in 124 countries to assess current and expected economic developments. Their answers were analyzed to reach quarterly figures representative of the current global economic climate, situation and expectations.