Dive Brief:

• Confidence in future economic growth rose during Q2 among North American CFOs, accountants and other finance executives, buoyed by renewed stability in the banking system and excitement over the profit-boosting potential from artificial intelligence, according to a survey of executives.
• The mood of the region’s finance executives showed “resilience” despite the Federal Reserve’s most aggressive monetary tightening in 40 years, according to Susie Duong, research director at the Institute of Management Accountants.
• Stronger-than-expected U.S. growth during Q2 “suggests that an imminent recession for the U.S. does not seem likely this year, although Asia and Europe could increasingly become a drag if growth decelerates significantly there,” Duong said in a statement. The IMA conducts the quarterly survey with the Association of Chartered Certified Accountants.

Dive Insight:

The economic outlook among finance executives in Western Europe and Asia-Pacific grew cloudy during Q2 as China’s post-lockdown recovery fell short of expectations and the European Central Bank and Bank of England raised interest rates despite little or no economic growth in their jurisdictions, the IMA and ACCA said.

“Things aren’t looking that great in Asia-Pacific and Western Europe,” ACCA Chief Economist Jonathan Ashworth said.

Economic malaise in the euro area, U.K. and China constrains efforts by U.S. exporters to leverage the weakening dollar, which during the past year has fallen 3.6% against a basket of six currencies that includes the euro, British pound and Japanese Yen.

The euro area in 2023 will likely grow just 1.2% on a Q4-to-Q4 basis, the International Monetary Fund said last month.

“China’s recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers,” the IMF said in an update of its World Economic Outlook.

Officials in Beijing, Frankfurt and London may need to adjust policy to account for weak growth, Ashworth said.

“Chinese policymakers may need to increase policy stimulus, while the ECB and BoE might want to tread carefully with monetary tightening,” he said in a statement. “In contrast, the U.S. economy is looking pretty resilient, suggesting the Fed may be able to carry off the much-talked-about soft landing,” or a reduction of inflation that does not cause recession.

U.S. economic growth accelerated last quarter even as the Fed raised interest rates at the fastest pace in four decades. Gross domestic product increased 2.4% compared with 2% during the first quarter, with stronger business fixed investment fueling much of the expansion.

Fed economists, after forecasting in March and June that the economy will tip into a mild recession, now only expect “a noticeable slowdown in growth starting later this year,” Fed Chair Jerome Powell said last week. Many private-sector economists have also hedged forecasts of recession this year.

An exception: Fitch Ratings on Tuesday affirmed its recession prediction while downgrading U.S. debt to AA+ from AAA, its highest rating.

“Tighter credit conditions, weakening business investment and a slowdown in consumption will push the U.S. economy into a mild recession” during the coming two quarters, Fitch said.

So far, strength in the labor market and other indicators suggest that the U.S. has avoided a downturn despite monetary policy tightening, the IMA and ACCA said.

Rising confidence among North American financial executives “not only reflected a sense of relief that the U.S. regional banking crisis had been contained, but also the excitement about artificial intelligence which, in turn, prompted a major rally in U.S.” technology stocks, the IMA and ACCA said.

The optimism, and faster economic growth, may fade as Fed tightening takes hold, the organizations said. Several months usually pass before an aggressive series of rate hikes slows growth and triggers recession.

“Given the lags involved, we would normally expect the Fed’s policy shift to create growing headwinds for economic activity later this year,” the IMA and ACCA said.