Report by the KOF Swiss Economic Institute and Fundação Getulio Vargas, Brazil

THE Global Barometers fell once again in August, signalling a slowdown in world growth for this quarter. The Coincident Barometer decreased for the seventh month in a row, while the Leading Barometer dropped again after remaining stable in the previous month.

The results reflect a bleak perspective for world economic growth in the coming months.

The Coincident Global Economic Barometer declined 3.5 points in August 2022, to 88.9 points, accumulating a 22.3-​point decrease since February this year.

The Leading Global Economic Barometer dropped 3.4 points for the month, reaching 82.5 points. Although the levels are well above those of the worst moments of the crises of 2008-​09 and 2020, both indicators are now at levels that have only been reached during these two global recessions of the 21st century.

The results are spread across the different regions of the world, with a more intense fall in the Asia, Pacific, and Africa regions.

“Unemployment rates in the European Union, the United Kingdom and the United States have reached their lowest levels of this century, indicating booming or at least strongly recovering economies,” KOF Swiss Economic Institute director, Jan-​​Egbert Sturm said.

“But the global barometers, now at their lowest levels outside the financial and pandemic crises, paint a rather gloomy outlook for the world economy. The war in Ukraine, political tensions in China and still exceptionally high inflation rates in many Western economies create an environment with many unknowns.

“With the fiscal powder keg de facto empty and monetary policy increasingly focused on fighting inflation, this is unsettling for both consumers and producers,” Professor Sturm said.

Coincident Barometer – regions and sectors

In August, all regions contributed to the negative result of the Coincident Barometer. The largest contribution comes from the Asia, Pacific, and Africa region, with -2.5 points, while Europe contributed -0.9 points and the Western Hemisphere -0.1 points.

The decrease in the global indicator was partly caused by supply restrictions related to the war in Eastern Europe and the economic slowdown in Asia, which had shown signs of recovery in the previous two months after the restrictions on mobility adopted in China as a measure to combat an outbreak of Covid-​19 were lifted.

The new decline in the coincident indicator for the region suggested that the apparent recovery may have been temporary. The graph below illustrates the contribution of each region to the deviation of the Coincident Barometer from the historical mean of 100 points.

Among the coincident sector indicators, the decline is spread across all of them. The negative standout for the month was the Construction sector, which dropped 4.0 points and has now the lowest level among all sectors (71.5 points). With this result, all the indicators move further below the historical mean of 100 points, with the Construction sector being the most distant (28.5 points below) and Industry the least distant (9.5 points below).

Leading Barometer – regions and sectors

The Leading Global Barometer leads the world economic growth rate cycle by three to six months on average. In August, the global indicator dropped 3.4 points to 82.5 points, the lowest level since June 2020 (60.7 pts).

As with the Coincident Barometer, the Asia, Pacific, and Africa regions contributed most to the decline, with -1.9 points. Europe also contributed negatively for the third consecutive month (-1.4 points), while the indicator for the Western Hemisphere remains stable this time after three months of negative contributions.

Global growth expectations for 2022 have been worsening in light of, among other factors, the ongoing conflict between Ukraine and Russia, inflationary pressures and the associated adoption of more restrictive monetary policies in various countries.

In August 2022, four of the five Leading indicator sectors were declining. Only the indicator for Trade increased this month after three consecutive falls.

All the indicators remain far below the historical mean of 100 points, especially Construction, which is 24.4 points below neutral. With 13.6 points, Trade is the least distant from the historical mean.  

What are the Global Economic Barometers?

The Global Economic Barometers are a system of indicators enabling timely analysis of global economic development. They represent a collaboration between the KOF Swiss Economic Institute of the ETH Zurich in Switzerland and Fundação Getulio Vargas (FGV), based in Rio de Janeiro, Brazil. The system consists of two composite indicators, the Coincident Barometer and the Leading Barometer. The Coincident Barometer reflects the current state of economic activity, while the Leading Barometer provides a cyclical signal roughly six months ahead of current economic developments.

The two Barometers comprise the results of economic tendency surveys conducted in more than 50 countries with the aim of achieving the broadest possible global coverage. The advantages of economic tendency surveys are that their results are usually readily available and are not substantially revised after first publication.

The Coincident Barometer includes more than 1000 different time series, while the Leading Barometer consists of over 600 time series. Cross-​​​​correlation analysis is used to decide which individual time series are included in the barometers. This involves correlating the individual time series with a reference series.

The reference series used is the year-​​​​on-​year growth rate of global gross domestic product (GDP), where the individual national GDPs are aggregated at purchasing power parity to form global GDP. A time series is only included in a Barometer if it shows a sufficiently high correlation and a suitable synchronization or lead with the reference series. The time period used for this correlation analysis currently runs from January 2010 to December 2019.

The series of the two Barometers are revised each month at publication and are standardized to have a mean of 100 and a standard deviation of 10 for the 10-​year period previous to the most recent observations.

Source and methodology:

Klaus Abberger, Michael Graff, Aloisio Jr. Campelo, Anna Carolina Lemos Gouveia, Oliver Müller and Jan-​​​​Egbert Sturm (2020), The Global Economic Barometers: Composite indicators for the world economy. KOF Working Papers, vol. 471, Zurich: KOF Swiss Economic Institute, ETH Zurich, 2020.

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IN A BID to support and encourage female entrepreneurship in Australia, women who currently own and lead businesses are being asked to share their experiences.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has released a survey aimed at identifying any unique challenges and opportunities faced by women who own and lead businesses.

The findings will be used to consider how we can create the best possible environment for women to start, grow and run a business in Australia.   

“More than 97 percent of women-owned and led businesses in Australia are small businesses, and small businesses are the lifeblood of our economy,” Mr Billson said. ASBFEO drew the figure in March 2021 from a calculation of data from the August 2016 Census.

The Ombudsman also utilisd research drawn from the Empowering Women Innovation Leaders in Australia and Southeast Asia – Women in Leadership Report: 

“Research has found that boosting the number of women entrepreneurs could contribute between $71–$135 billion to the Australian economy and up to $7 trillion globally," Mr Billson said. 

“I encourage women business owners and operators to complete this survey so we can harness opportunities and look at how to address any needless headwinds or obstacles to their success.”

The confidential survey Is open until October 19, 2021. It can be accessed by visiting the Australian Small Business and Family Enterprise Ombudsman website at www.asbfeo.gov.au or directly at: WOWL survey.

References:

Calculation of census data. August 2016, ASBFEO calculations. Retrieved: March 2021

Empowering Women Innovation Leaders in Australia and Southeast Asia – Women in Leadership Report: https://asialinkbusiness.com.au/uploads/documents/ALB0102_WomenLeadershipAsia_Report2020_v18_(003).pdf

ALMOST HALF of surveyed accountants are 'fairly' or 'extremely' worried about the state of the Australian economy, according to Australian professional accounting body, CPA Australia.

CPA Australia has commenced an Australian-first longitudinal survey tracking economic and business sentiment of accountants against the implementation of Australia’s National COVID-19 Response Plan (the National COVID-19 Plan), recently agreed to by National Cabinet.

“Accountants are in the trenches with Australian businesses every day during COVID-19,” CPA Australia chief executive Andrew Hunter said. “Surveying them as we transition through the National COVID-19 Plan will allow us to track its impact on businesses and the economy.

“This survey will serve as a canary in the coalmine. We expect to see a positive uptick in sentiment as we transition through the National COVID-19 Plan. If that doesn’t happen, it may be an early warning sign that businesses and the economy need extra assistance -- information that we can feed back to government.”

From the research, CPA Australia has developed four clear recommendations:   

Business supports should be delivered nationally, not at a state or territory level.

Government should involve the accounting profession early in the design and implementation of business support programs. 

Government should conduct a business education program on the National COVID-19 Plan. 

Ways the private sector can assist with the vaccine roll out should be explored.

FEAR OF ECONOMIC UNKNOWNS

About 50 percent of surveyed accountants are 'fairly' or 'extremely' worried about the state of the economy over the next three months. This figure drops by less than one percent when looking at the state of the economy over the next six months. Only 20 percent of respondents are 'fairly' or 'extremely' confident about the economy over the same periods.

“Accountants in locked down areas are generally more worried about the economy than those in non-lockdown areas, but not by a big margin," Mr Hunter said. "It’s clear that lockdowns create a lot of referred pain for businesses no matter where they’re located. This highlights the challenges associated with implementing different business support programs on a state by state or territory basis.”

Confidence in the state of Australian businesses’ performance was higher, with about 60 percent of those surveyed 'fairly' or 'extremely' confident in this over the next three and six months.

Surveyed accountants working in accounting practices reported that many of their business clients were experiencing high to very high levels of financial stress. Nearly 54 percent expect their business clients to find it 'difficult' or 'very difficult' to pay debts over the next three months.

Meanwhile, over 46 percent of surveyed accountants say enquiries they have received regarding financial distress have increased in the past month. Even in non-lockdown areas, nearly 38 percent of surveyed accountants reported an increase in these inquiries.

According to the survey, the leading cause of pain for businesses was uncertainty around lockdowns, followed by attracting and retaining the right staff and the speed of the vaccine roll out.

“Governments can reduce the pain of lockdowns by announcing business supports at the same as a lockdown is announced," Mr Hunter said. "We’ve grown increasingly frustrated with failures by governments to plan for lockdowns and with red tape holding up the delivery of vital financial support to businesses.”

LITTLE KNOWLEDGE OF NATIONAL COVID-19 PLAN

Nearly three-quarters of surveyed accountants were 'unclear' or 'unaware' of the National COVID-19 Plan. This figure was lower in lockdown areas versus non-lockdown areas (66 percent to 78 percent).

“When it comes to the National COVID-19 Plan, it’s apparent that the government has a communications problem," Mr Hunter said.

“To effectively advise clients on business strategy, accountants need to understand how governments will respond to future outbreaks when vaccination rates reach 70 and 80 percent. Forewarned is forearmed. If the business community and their advisers are better informed, they can prepare for the public and social health measures they’re likely to face.”

Close to 80 percent of surveyed accountants think governments should be doing more to increase vaccinations. This figure is similar across both lockdown and non-lockdown areas.

“Many organisations, like CPA Australia, are pleased to support the vaccine roll-out in any way we can," Mr Hunter said. "We’d welcome governments exploring opportunities and engaging with business on how they can contribute.”

The inaugural survey was conducted from August 9-15 and captured the views of nearly 200 CPA Australia members working in accounting practices and Australian businesses. CPA Australia plans to conduct this survey at regular intervals as the National COVID-19 Plan is implemented.

www.cpaaustralia.com.au

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Business leaders struggling with finding a way forward in spite of the pandemic lockdowns seem to be struggling with something else concurrently: focusing their minds. University studies are coming to the rescue, revealing that the way we remember and process information is greatly affected when we are in isolation. In this article, University of New South Wales (UNSW) researchers show how variations on our daily activity and exercise will help.

SCIENTISTS have found the ‘Groundhog Day’ effect of lockdown affects our memory and cognitive ability.

While there is a lack of data on the Australian lockdown experience, a study on Italians who were locked down for about two months last year found an increase in distractions and mind wandering was common.

Professor Brett Hayes from UNSW's School of Psychology said a study of 4000 respondents found 30 percent had experienced some degree of change in their everyday cognition.

Some of the common everyday problems were memory problems, such as where you left your mobile phone, trouble in focusing your attention, and losing focus when trying to read a book or watching something online. 

“Literally starting one job and without thinking about it, going off and starting a second job without finishing the first one,” the cognitive psychologist said.

“It was also worst for people who had emotional issues, who were feeling depressed, or stressed and anxious, they had more of these symptoms. But even for those without those issues, these cognitive issues were very common," Prof. Hayes said.

The study suggested the reason why our everyday memory gets worse in lockdown is because we are living through a sort of Groundhog Day, which in turn makes it harder for our brain to lay down memories and retrieve them later on.  

“What we know about human memory is that the context is really important. You might be doing a job at home, chatting to a friend, or watching a movie,” Prof. Hayes said. “When we have those experiences, we might be focused on the main part of the experience, but our brain is actually encoding a lot of other things just incidentally, like where that’s happening, the location, where and when it’s taking place.”

He said our brain is sensitive to this background context, which helps us lay down our memories in a way that it’s easy for us to retrieve those experiences later on.

“So when the context is changing, which is does normally in everyday life when we are moving around and visiting different places in different times of the day, then it’s easy to lay down memories and recall them,” Prof. Hayes said. “But when you are in lockdown, your opportunities to move around in the environment and engage in different activities are very limited. 

And when you do get into that Groundhog Day cycle, just variations on the same thing each day, that’s when the days do tend to start blurring into each other, because we have the same context for each day.”

He said this makes it harder for our brain to separate those experiences and that’s one of the reasons why we experience memory fog during lockdown. A study on a two-month lockdown in Scotland last year tasked recipients with online tasks to test their memory, decision making and selective attention.

They found performance was poorer during lockdown, but once restrictions were eased, particularly the social isolation, they recovered quite quickly.

Levels of social interaction during lockdown were also correlated with cognitive performance.

“People who were able to maintain their online interaction more during lockdown did better at these tasks,” he said. “So complete isolation is really very bad for our cognitive functioning, but if we can keep up that level of interaction to some degree with whoever is in our house or online, that seems to be good for our cognitive functioning.”

Researchers have also found that people who had conversations within the last three days were a bit more protected from cognitive issues during long lockdown.

Other studies are looking at how people’s options are limited in COVID and have pointed to the importance of having a bit of variation and exercise every day.

“From a memory point of view, if you are able to exercise outside the house, vary those exercise paths from day to day to just to allow a different context for your brain to encode those different days, if you want to be able to remember what you did from day to day a bit better,” Prof. Hayes said.

Variations on exercises and activities in your house or apartment will also help you avoid the memory fog.

Prof. Hayes said there is a close connection between good cognitive ability and physical activity.

“So keeping up regular exercise is good to try and keeping our memory and decision making in shape as much as you can during lockdown," he said.  “There’s some evidence that even if you are really restricted – even doing something like playing Exergames (online exercise games) where you watch a screen and jump around, that does show some benefits. The nice thing is that you can play with your family and so there’s a social dimension as well.”

Online yoga and dancing were things that people reported as part of their activity which, he said, seemed to have a beneficial effect on cognition.

“While there hasn’t been time to conduct research on the long term effects of lockdowns on memory, the evidence so far shows that as restrictions are eased, these cognitive issues should improve,” he said.