Jim Pettigrew: A guessing game for 2016
China’s growth and the oil and gas supply are only two of the unknowns giving the markets the collywobbles, reports Jim Pettigrew CA.
Crystal balls aren’t issued as part of the CA training. Nor is an octopus a 'must have' in the boardroom, even though Paul the Octopus did have an 85 per cent success rate when his tentacles were used live on German television to predict the outcome of matches in the 2010 FIFA World Cup.
We could all do with a crystal ball or a Paul the Octopus as well as our CA analytical skills to predict what may happen to the global economy in 2016.
Times they are a-changing
What a difference six weeks makes for the British chancellor, George Osborne. In his Autumn Statement in November he painted a rosy and upbeat picture heading into 2016.
Osborne’s Christmas turkey must have given him indigestion, however. Not long after it had settled in the chancellorial belly, his tune changed. Now the chancellor warns of a 'dangerous cocktail' of economic risks and a 'creeping complacency'. So, what are the tea leaves telling us?
The other lightning rod in global markets is the highstakes poker being played with the supply of oil and gas.
So much hangs on China. Volatility in Chinese stocks gives global markets the jitters. China clearly needs a more rational system for its stock exchanges, but the true lack of confidence comes from the fair assumption that Chinese growth is in dangerous decline.
The other lightning rod in global markets is the highstakes poker being played with the supply of oil and gas. With Brent crude dropping to around $30 a barrel, the hurt is now spreading across the wider economy. Although we shouldn’t lose sight of those whose businesses benefit greatly from cheap oil.
The combination of the impact of these two factors and a post-festive equity hangover has led Wall Street to have one of its worst starts to the new year ever. Add to that the chance of interest rate rises in the UK some time in the next 18 months and the great unknown that is the unwinding of quantitative easing.
As if there wasn’t enough uncertainty around, the emergence from the shadows of UK cabinet ministers openly backing an exit from Europe will add to the furrowed brows in British boardrooms.
As the British chancellor surveys a glass half empty, he won’t want to be reminded that his 'March of the Makers' seems to be more of a shuffle than a military two-step. That, in itself, points to a needed rebalancing of the UK economy, which hasn’t yet happened.
When you take all the current evidence into account, risk scores are rising. We can only hope that as the days begin to lengthen we may get some economic sunlight to lift the gloom.
In 2016 there will also be a great deal of change at the coalface of the finance profession. One issue is cyber-security, the hottest topic in risk across all sizes of organisations in the wake of the Talk, Talk hacking, where more than 150,000 customers had their data breached. Audit committees across the land will be focusing their efforts on ensuring that, on their watch, cyber risk is mitigated.
Also coming up this year:
- Many more employers will reach their staging date for auto-enrolment for pensions.
- We will see security changes to the BACS payment system.
- New European rules on VAT on digital products.
- Many CAs will prepare accounts under FRS 102 for the first time.
- There is also further revision of the Corporate Governance Code for financial statements with the viability assessment requirements giving CAs much to ponder.
As always, the challenge and opportunity of change will be the meat and drink of the CA.
Crystal balls and octopuses at the ready: prepare for battle!