The world’s corporate leaders are decidedly less bullish about the global economy than they were just a few months ago, according to the CGMA Global Economic Forecast.
The quarterly report, released today by the American Institute of CPAs and the Chartered Institute of Management Accountants, surveyed 609 corporate executives worldwide and found that their 12-month global economic outlook dropped seven points from 65 in the first quarter to 58 in the second. The index gauges executive sentiment on a scale of 0 to 100, with 50 considered neutral and numbers above that representing positive sentiment.
“Although the CGMA Global Economic Index is still slightly above neutral, the pullback in overall optimism points to an unclear future in which companies must be prepared to address a variety of economic scenarios,” Arleen Thomas, AICPA senior vice president for management accounting, said in statement.
The report attributed the increased pessimism to the worsening sovereign and financial crisis in Europe, slower economic growth in China, and uncertainty over the political and fiscal situation in the U.S.
The CGMA Global Economic Index takes into account 10 survey measures, including executives’ projected company revenue and profits and their level of optimism for the global and domestic economies. While all 10 measures weakened, the one that gauged global economic optimism registered the most significant decline, dropping 11 points from an already pessimistic 37 to 26. The only other measure in the index that registered a negative reading was domestic economic optimism, which fell to 47 from 55.
The decline in the index was most pronounced in the U.K., which fell 12 points from a positive reading of 62 in the first quarter to a neutral reading of 50 in the latest survey. Executive sentiment about Europe also fell substantially, dropping to a negative reading of 47 from 57 in the previous quarter.
In the United States, the drop in the index was more muted, falling five points to 64. Only 12% of U.S. executives surveyed were optimistic about the global economy, down from 22% in the previous quarter. They were more bullish about the U.S. economy with 36% saying they were optimistic.
Interestingly, executives in the financial and insurance industry were the most upbeat of all executives surveyed. More than half (53%) was optimistic about the prospects for their companies, followed closely by those in retail and wholesale trade (50%). All other sectors had less than 50% of their executives expressing optimism, including banking, which had 48% saying they were optimistic, down from 50% in the previous quarter.
Not surprisingly — given the overall gloomy outlook — executives scaled back their expectations for revenues and profits, according to the survey. The overall expected increase in revenues over the next 12 months fell from 4.1% in the first quarter to 2.7% in the second quarter. In the U.S., this number fell from 4.8% to 3.5%. Profit expectations also declined from 3.5% to 2% globally and 3.8% to 3.4% in the U.S.
The survey was sent to executives who have the CGMA (chartered global management accountant) designation between May 23, 2012 and June 18, 2012. A total of 609 executives worldwide participated in the survey.