Emmanouil Schizas is an SME policy advisor for the ACCA, where he deals with access to finance, late payments and the public procurement market. He is also editor of the ACCA Global Economic Conditions Survey and acts as the secretariat to the ACCA UK SME Committee.
He was speaking to Daniel Tost of EurActiv.de.
To read a shortened version of this interview, please click here.
What are the key findings of the Global Economic Conditions survey?
The global recovery has run out of steam. In the early days of the recovery, in the first or second quarter of 2009, economic conditions were so depressed that any change of conditions was a very big deal and would create a surge of confidence. At least in Europe, in early 2009 people were saying: 'the worst is over, most major economies have come out of recession and will return to growth'. That never materialised.
What became clear is that the further we come into the recovery, the slower and weaker the recovery becomes. Which, in a way, is natural. Most economists will tell you that right after a sharp recession they expect to see a strong bounce in the beginning and then expect to see an evening out in growth. The point is that a lot of the earlier confidence was based on that strong bounce, itself fuelled by a great deal of government support, which just wasn't sustainable.
One of the main headlines of the report was that accountants are becoming more frustrated. Would you put that down to the fact that the recovery has been taking too long?
When I say 'frustrated' I think our members have for some time been expecting improvements in trading conditions that just haven't materialised. Especially when you look at some of our membership in Asia for example, it was very clear that in the last half of 2009 those economies have really started heating up in the expectation that their governments would maintain fiscal and monetary stimulus, and that consumers in the West would sort of get with the programme and start increasing demand.
As that never quite materialised you will see that in general our members in Asia are revising their expectations downwards. They are the really frustrated part of the membership, because obviously those economies have now invested in a recovery that is not really emerging as quickly as they might have thought.
But the survey did also show that there is an upward trend in the rating of government initiatives. How would that coincide with the rising frustration or pessimism?
The improvement has to do with the fact that some of the initial work that governments did takes time to bear fruit. Recapitalising banks or supporting enterprises are portrayed to the electorate as measures that will work instantly. But in fact this kind of support takes quite a few months to filter through.
To some extent what you see now is an aftershock of the government intervention that came before. Also, people are just taking time to reassess. In the earlier days of the recovery, for instance, in Europe we had a very large number of our practising accountant members – something like 80% – saying they couldn't get finance for their clients.
Obviously this was hugely frustrating and people started saying the government should do something about this. Now that a lot of these fundamental issues are easing, the same amount of frustration and the feeling that the government should do something is no longer there.
When the economy does better, perceptions of governments' work also start to improve regardless of what the governments may or may not have done.
In your survey, you differentiate between Central and Eastern Europe and Western Europe. Accountants in Central and Eastern Europe are expecting a quicker recovery than their colleagues in the rest of the world. Why?
The recession in Central and Eastern Europe was a completely different beast than in Western Europe. Eastern European countries were hit much harder. The change in attitudes and in paradigms was much more intense. When we compare our members in say, the Ukraine and the UK, members in the UK are sort of still hoping that things will go back to the way they were. Whereas the members in the Ukraine are saying, things will never go back to the way they were. You just have to prepare for the new economy that will come.
Because of the sharpness of the recession in Central and Eastern Europe, it was easier for people to believe that in one year from now things will be significantly better. Whereas in countries where the recession was shallower, people thought: in a year from now things will be pretty much the same. The big difference is in how hard different parts of Europe were hit, how attitudes changed because of that and the combination of those two creates the observed differences.
And here's a very interesting point: in the last quarter of our survey incorporated a section where we asked our members to give advice to a small business looking to trade in 2010. We grouped our members based on the content of the advice they gave into three categories. One was the defensive category. These basically said: be careful, manage your cash-flow, don’t do anything risky and so forth. Then there was the competitive category who said: beat your opposition either on price or on quality or on both. And then there were the strategists, who advocated investment, looking into new markets etc.
If you look at Central and Eastern Europe the 'competitives' were over-represented. What we believe happened is this: because the recession was so hard on these countries, it created a paradigm shift. People said, the way we used to work doesn't work anymore and we need to change our industry and our economies in order to remain competitive. That's why their views of the global economy as well are very different: they aren't looking forward to a return to 2007; their expectations have been shaped by the new paradigm.
Quoting the survey report, it states that "Western Europe continues to languish behind the rest of the ACCA's regional markets". Maybe you could elaborate on that point.
Well, the recovery in Western Europe eventually will have to rely on demand, on domestic demand in Western Europe. Now, there are variations: Germany is more export-led than other countries, Britain is more dependent on consumer credit than some other countries. But as a whole, Western Europe will rely on demand from consumers and businesses to recover. The problem with that is that consumer demand and demand from businesses as well relies on credit. And credit growth is still very weak. In fact, we've done other bits of research that suggest the supply of credit may not recover until the end of 2011. Until that time, you'll find that the situation in Western Europe will remain very fragile.
There is one more thing I can't leave out of that answer. One of the big problems in Western Europe is going to be government debt and that's going to be with us for a long time. We have found that, in countries where our members generally believe that governments will either overspend substantially or underspend substantially, the recovery is expected to take much longer. Western Europe is more at risk of this happening than many other regional markets.
Taking into account the results of your previous surveys, what are the most important trends?
There are three fundamental changes. The first has to do with employment and investment. We've seen a sharp drop in the incidence of staff cuts and redundancies. That's accompanied by a mild recovery in investment, which suggests that businesses are expecting better days ahead and are willing to start putting their money where their mouth is.
The second big difference is the change in attitudes in Asia. Up until now, Asia has been leading the recovery in our indicators. And it is becoming obvious over the last six months that they are taking a step back as their governments withdraw support and are reevaluating the recovery. They now think that it's going to be weaker and slower than they previously thought.
Those are the first two. And the last one basically has to do with the overall shape of the recovery. We now think that most of the downside risk has fallen away. Most of the factors that can go really badly wrong are stabilising. But because all of the downside risks are receding, we can now see very clearly how weak the recovery is, how limited the upside is.
If this weakness is so plain to see, wouldn't one expect attitudes to be much more pessimistic?
Attitudes both in the surveys and elsewhere are still quite pessimistic. The downward slope in expectations about the strength of the recovery also correlates with a slight downward slope in business confidence, in income expectations. The recovery is expected to take longer. People are adjusting all of their perceptions and expectations downwards.
