According to a World Economic Survey (WES) carried out by the Paris-based International Chamber of Commerce (ICC) and the Munich-based economic research institute Ifo, “the world economy has weakened slightly this quarter, mainly due to declining optimism in Asia and Latin America, while North America shows signs of continuing recovery.”
The survey consulted with “more than 1,000 economists in 123 countries,” and found “some decline in both the current global economic situation and the six-month economic outlook. The poll’s climate indicator dropped to 94.1 for the third quarter of 2013, back down to early 2013 levels, despite a rise to 96.8 in the second quarter.”
ICC Secretary General Jean-Guy Carrier commented: “We’re encouraged by the climate of economic recovery in the US, and some stabilization in Europe; however, with many economies still struggling, governments need to do more to restore investor confidence. ICC urges G20 leaders to take strong measures to address this uncertainty at the upcoming G20 Summit in Saint Petersburg and send a signal to markets encouraging investment. Greater trade flows and investment could provide a debt-free and much needed boost to job creation.”
ICC has also been urging members of the World Trade Organization (WTO) to reach a final agreement on trade facilitation, which could result in GDP increases of approximately $960 billion and create over 18 million jobs worldwide, according to a study by the Peterson Institute.
“There are very few issues that need to be resolved to reach an agreement on trade facilitation and this could be achieved by December 2013 at the next ministerial conference,” Carrier said
As for signs of global economic recovery, Klaus Wohlrabe, Deputy Head of Ifo’s Center for Business Cycle Analysis and Surveys, explained that developments in the next three months are crucial. “The poll suggests some global recovery could still be possible this year: it’s stopped, but we’re still on an even path,” he said. “We hope the business climate will pick up in the next quarter, but if it declines, particularly in Asia, the world economy could deteriorate.”
The survey also found that the Ifo economic climate indicator in Asia “fell to below its long-term average following a temporary boost in optimism in the previous quarter. This was driven mainly by increased caution about China’s six-month economic outlook, while the current economic situation slipped below ‘satisfactory.’”
Wohlrabe explained: “The decline in China’s economic climate is largely due to a drop in expectations – it’s a psychological issue. We need to wait to the next quarter to see if these less optimistic sentiments materialize as real economic decline.”
The report did notes that “WES experts have become more upbeat about North America’s economic situation over the past year, and expectations continue to rise, suggesting economic recovery will continue.
In the euro zone the ICC-Ifo poll “suggests emerging economic stabilization.” It also noted that “economic expectations have reached a three-year high, boosting the area’s economic climate indicator to its highest level since late 2011. Only Slovenia and Cyprus expect continued economic decline. However, while assessments of current economic conditions in euro countries are back up to early 2013 levels, the overall economic climate is still below its long-term average.
“Ifo attributes this optimism in the Eurozone to ‘a lack of bad news’ since confidence was boosted last year by the European Central Bank President Mario Draghi’s pledge to protect the Eurozone from collapse. This is giving countries the time they need to put into effect measures for economic recovery.
“ICC-Ifo survey respondents describe the economic situation as ‘poor’ in France, Greece, Italy, Portugal, Spain and Cyprus. They are slightly more positive about Belgium, Ireland, Finland, The Netherlands and Slovenia. Germany and Estonia are the only economies to be scored as ‘satisfactory to good.’”
Overall, WES analysts “expect a 3.2 percent increase in prices for 2013, unchanged from the previous quarter. Estimates for the euro area fell to 1.7 percent for 2013, down from 1.9 percent in the previous quarter.
“Short-term interest rates, set by central banks, are expected to remain largely stable on average over the next six months. However, a growing number of analysts expect a rise in long-term interest rates, which are affected mainly by the capital market. Despite a slight increase forecast in long-term interest rates over most of the euro zone, decreased or unchanged rates are expected in crisis-afflicted countries.”
The survey also indicated that survey participants “expect the value of the US dollar to grow moderately over the next six months, and the US dollar to appreciate against the euro.”
The WES also tackled the thorny problem of tax competition with a special question in the survey focused on business attitudes to governments competing for foreign investment by lowering their tax rates. “In all world regions, at least half the WES experts say business in their country considers legal tax competition between countries to be ‘potentially harmful if not limited by international agreement.’ About a third consider international tax competition to be ‘beneficial’ – ranging from 21 percent for Oceania to 44 percent for CIS, and a small proportion say it is “harmful.’”
Economic experts were also asked “Which tax do you find most burdensome in administrative terms for business in your country?” The responses varied across the world, “with corporate income tax considered the most bureaucratically oppressive in Asia, North America and Oceania. Employers’ social security contributions are cited as the worst red tape for tax in Western and Eastern Europe, CIS and Latin America. Meanwhile, VAT or sales tax is most burdensome for business in Africa and the Near East. In most regions, branch-specific and energy taxes pose the least trouble.”
Source: International Chamber of Commerce