Finance Professionals Upbeat as India Works Its Way Out of the FDI Slowdown, But a New Problem Looms.

Online, May 1, 2014 (Newswire.com) - Amid signs that foreign direct investment (FDI) is rising again in India, the economic outlook in the sub-continent is now at its most positive for two and a half years, according to a new global survey.

However, while the Global Economic Conditions Survey (GECS) from ACCA (the Association of Chartered Certified Accountants) and the Institute of Management Accountants (IMA) shows that two thirds (67% - up from 46% in the previous six months) of respondents in India were optimistic about the national economy, there are signs that access to growth capital is tightening.

Emmanouil Schizas, ACCA's Senior Economic Analyst, said: "Overall, it appears as though the FDI crunch that endangered the recovery in 2013 is coming to an end. Business opportunities increased significantly in the last six months, suggesting recovery from a two-year slump. With a small lag, business capacity building has also started to stabilise after a year-long downturn, and cash flow and demand conditions have also started to recover following a significant tightening in late 2013. Importantly, price and exchange rate volatility is now lower than at any point in almost two years.

"In response, business confidence has recovered from a slump in late 2013, and is once again up year-on-year. 43% of respondents in Q4 2013 and Q1 2014 reported confidence gains, up from 29% in the previous six months, while only 30% reported losses, down from 49% previously," said Emmanouil Schizas, who added:"Despite improving fundamentals in many respects, there are also signs that India's economy is facing new headwinds. Respondents report that access to growth capital is still tightening, and deteriorated substantially over the last months, exacerbating an 18-month negative trend."

Globally, business confidence is up, but the economic recovery could be seriously flawed, GECS has revealed.

The first GECS edition for 2014 saw global business confidence nearly cross over into positive territory for the first time in five years.

Thirty per cent of respondents around the world were now more confident about the prospects of their organisations than they had been three months earlier, a figure unchanged since late 2013. On the other hand, 31% reported a loss of confidence, down from 34% in late 2013.

Additionally, more than half of the global GECS sample (58%, up from 55% in late 2013) were optimistic about the state of their national economies, reporting that recovery was underway or about to begin. The pessimists only made up 38% of the sample, down from 42% in the previous quarter.

However, a closer look revealed a worrying picture for the economic recovery.

Emmanouil Schizas, said: "Despite the best business confidence readings since the GECS began in 2009, ACCA and IMA's analysis of the influence of fundamentals on business confidence suggests that the economic recovery is flawed and has now become much more fragile.

"Since early 2013, global business confidence has become increasingly dependent on price and exchange rate stability. This trend is a sign of building financial turbulence, and has accelerated dramatically in early 2014. Financial stability is now a more significant contributor to business confidence than cash-flow and demand. Expectations of government spending and ratings of government policy also became more significant contributors in early 2014, suggesting that the recovery has been hollowed-out in early 2014 and is now over-dependent on policy."

Emerging markets
The ACCA and IMA survey has revealed a continued divergence of fortunes between developed and emerging markets.

Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research, said: "The announcement of the Federal Reserve's intention to 'taper' its programme of asset purchases sent shockwaves through the world's financial markets in 2013 and it didn't take long to reach the real economy, especially in emerging markets which witnessed an investor exodus. Three quarters into the post-Taper-announcement period, the change of fortunes throughout ACCA and IMA's emerging markets is becoming ever more evident. The performance gap between the two groups has widened dramatically from Q3 2013 onwards, and while business revenues and hiring appear to have resisted the general trend in early 2014, overall the gap between developed and emerging economies has widened once again.

"This is despite business opportunities being no less forthcoming in emerging markets than in developed ones. ACCA and IMA members are telling us that it is business conditions on the ground, and particularly the lack of growth capital and financial instability, that has held emerging economies back."