The Q2 GECS, conducted in mid-June, pointed to a decisive deterioration in the global economic outlook due to the effects of war in Ukraine and the surge in inflation across much of the world.

But while risks have risen, indications are that a global recession will be avoided. However, while confidence among financial professionals has dropped sharply, the level remains above the low-point reached at the height of the COVID-19 pandemic.

The two “fear” indices – reflecting level of concern that customers and suppliers may go out of business – were little changed in the Q2 survey, both edging slightly higher. Both indices have fallen back from the extreme levels seen in 2020 but are still above pre-pandemic levels.

The largest fall in confidence occurred in the Middle East, a region more exposed to trade with Russia/Ukraine while North America and Western Europe recorded especially large falls due to big jumps in inflation in recent months.

Elsewhere the falls in confidence were still significant, but more modest.  Only in North America has confidence fallen back to levels seen during the COVID-19 pandemic in 2020.

While the outlook has darkened, the drop-in confidence is much greater than in orders. Indeed orders, a lead indicator of economic activity, are above their long-run average. The employment index is also well above its long-run average, despite dropping in Q2. Jobs markets are tight, and employment is rising in many economies, providing some offset to the effects of high inflation on real incomes.

In a list of top concerns since the Q1 survey, financial professionals have swapped concerns over COVID for worries about inflation and rising interest rates. But for the third GECS in a row, supply shortages and supply chain issues have remained the highest ranked risk. Hopes are that this issue would fade in importance as this year progressed are fading.

Jamie Lyon, head of skills, sectors and technology at ACCA, said: “Post-pandemic recovery has now given way to negligible economic growth, elevated inflation, and extreme uncertainty. The war in Ukraine has given inflation a further boost by pushing commodity prices higher. But inflation was already high and rising before the war started in February: a strong rebound in demand fuelled by a massive monetary and fiscal response to the COVID pandemic had run up against supply shortages, resulting in a surge in price pressures.”

Loreal Jiles, vice president of research and thought leadership at IMA added: “High inflation is resulting in falls in real disposable incomes putting downward pressure on private demand, especially household consumption. Prices of both food and energy are rising rapidly. The result is a cost-of-living crunch on low-income households in advanced economies and across virtually all low and middle-income countries, where these two categories account for a high share of spending.”

Jamie Lyon concluded: “Risks of a global recession have increased but our central case is that growth will be positive if rather weak. Employment growth may support total consumption. Nonetheless, with the exception of the COVID recession of 2020, we expect global GDP growth this year and next will be the weakest since the Global Financial Crisis of 2007-09.”