Singapore second to Malaysia with worst inflation problems

69.1% of accountants surveyed by ACCA cited inflation as a problem this quarter compared to 35.0% in the first quarter of 2010.

According to the latest Global Economic Conditions survey of finance professionals by ACCA, of the 141 respondents in Malaysia, 72.3% reported problems with rising operating costs.

Escalating global inflation is the biggest challenge to businesses struggling to recover from the economic downturn.

The survey of more than 2,300 accountants in March 2011 shows that for the first time more than half (51%) reported problems with rising operating costs, making this the most commonly cited business challenge. Only 31% had reported rising costs as a being a problem when the question was asked in the fourth quarter of 2010.

While they reported that there were still businesses opportunities, these increased costs made it more difficult for accountants to spot opportunities for both growth and cost-cutting for the businesses they advise.

Mr Darryl Wee, country head of ACCA Singapore, said: “The huge rise in inflation has been the most worrying development to emerge in our latest survey. More than half of the respondents reported problems with rising operating costs, which will hinder their ability to look for new opportunities at the time when businesses desperately need to fill the order books.”

“The number of finance professionals worried about inflation will also be of concern to governments which have a range of measures in place to control rising prices. These measures were designed to ensure that businesses do not fail because they cannot afford the raw materials or expertise,” he said.

Responses suggest that the global economic recovery picked up speed again in early 2011, after briefly going into reverse at the end of 2010 - but that conditions remain fragile.

Accountants reported that both demand for goods and services and cash flow conditions have continued to improve around the world. While this has generally lead to a more stable outlook for employment and investment in developed countries, accountants in the developing world reported slightly less investment in staff and more layoffs as businesses come to terms with the weaker-than-expected recovery.

In the developing world, members saw an opportunity in exports, relying mostly on strong supply chain relationships, investments in quality, and innovation. Accountants in developed markets, however, reported fewer opportunities in all of these areas compared to previous quarters –while still anticipating a rise in new orders for their businesses.

With the global economic recovery still far from assured and Europe still in the throes of a financial crisis, members were asked how they thought government spending in their countries would change in the mid-term.

Although western countries were still expected to embrace austerity, respondents around the world agreed that their Governments were more likely to increase spending in order to support the recovery.

Overall, members around the world feel that fiscal policy is now more of a balancing act than before, especially in fast-growing markets where rising inflation has reduced the range of options available to policymakers. Almost one in six respondents expect their government to get spending dangerously wrong over the next five years.

The view from the Asia-Pacific region

The region’s front-row seats to the recovery are once again proving uncomfortable. While business incomes continued to rise in the last quarter, new orders did not – suggesting the region’s economic recovery is facing headwinds. These, combined with soaring inflation and a mild rise in the incidence of cashflow problems, represented by late payment and customer failures, has set back job creation and the employment outlook in general.

The worst problems with inflation were reported in Malaysia and Singapore. Of the 141 respondents in Malaysia, 72.3% reported problems with rising operating costs. In Singapore, 69.1% of the 97 respondents cited inflation as a problem this quarter compared to 35.0% in the first quarter of 2010.

That said, business confidence stays constant in Singapore but fell the fastest in Malaysia. Confidence in mainland China rose the fastest.

Investment in the region has remained resilient and spending on staff training and development appears to have held constant.