Deloitte: US shows upturn in economy while Europe declines
A second wave of COVID-19 in Europe and the United States has resulted in opposing financial outcomes for each country – just as news of a vaccine and the result from the US Presidential election was announced, report Deloitte.
During the past month there has been an uptick in the US economy while Europe has seen a decline according to the latest purchasing managers’ indices (PMIs) outlined in Deloitte’s weekly global economic report. The paper looks at what the impact of consumer mobility and restrictions has had on each country.
“In Europe, the implementation of significant economic restrictions has led to a sharp decline in consumer mobility and a decline in economic activity. In contrast, US state governments have only undertaken limited restrictions while consumer mobility has barely changed. The result is that the economy appears to be doing quite well this month,” says the report.
PMIs are based on sub-indices, such as output, new orders, export orders, employment, pricing, pipelines, and sentiment. A reading above 50 indicates growing activity.
Headlines from the report include:
- Manufacturing PMI increased from 53.4 in October to 56.7 – highest in 74 months
- Separate services PMI increased from 56.9 in October to 57.7 - highest in 68 months
- Services PMI fell from 46.9 in October to 41.3 in November
- Manufacturing PMI fell from 54.8 in October to 53.6 in November
- Services PMI fell from 46.9 in October to 41.3 in November
- PMI for manufacturing improved, rising to 55.2, a level indicating strong growth in activity
- Services PMI fell to a six-month low of 45.8, a level indicating a rapid decline in activity
- Japan - the manufacturing output index is 47.6 and services PMI, is 46.7 - both indicate activity declining at a moderate pace
In the US, the manufacturing PMI increased from 53.4 to 56.7 a level was driven by new domestic orders, but export orders were not especially strong.
“The domestic orders reflected strong demand by US consumers and businesses. In addition, sentiment improved substantially owing to vaccine news and the end of the election cycle,” comment Deloitte
“The sub-indices for new orders, employment, and sentiment were strong. Prices were up as demand evidently exceeded supply. The strength of services is somewhat surprising given the surge in the virus. However, recent mobility data indicates that many consumers are not responding significantly to the virus in terms of their behaviour. Plus, state governments are mostly not implementing significant restrictions.”
Despite an upturn in the US economy, the report shows there has been a decline in government support for unemployed workers which has led to a decline in personal income.
“In October, personal income declined at an annualised rate of US$130 billion after rising at a rate of US$147 billion in September. The reversal was mainly due to a sharp decline in the amount of government support for unemployed workers.
“Why the reversal? It might be related to the worsening pandemic. In any event, real (inflation-adjusted) disposable personal income fell 0.8% from September to October. Interestingly, if the sharp decline in government transfers were to be excluded, real disposable income would have grown 0.8%,” comment Deloitte.
In the Eurozone, the economy is moving in opposite directions, with manufacturing doing well and services, which include retail, wholesale, telecoms, travel, distribution, hospitality, finance, professional services, education and health care all declining.
“The weakness in services reflects the large-scale aversion to consumer-facing service,” said the report.
The manufacturing PMI for the Eurozone fell from 54.8 to 53.6 a level indicating continued moderate growth of activity and the services PMI, however, fell sharply from 46.9 to 41.3 - a six-month low.
“The deceleration was significant and reflected a marked slowdown in output and growth of new orders. The services PMI, however, fell sharply…This was due to an especially sharp slowdown in activity in the hospitality and travel industries.
The report indicates a strong likelihood that real GDP in the Eurozone will decline in the fourth quarter. Nevertheless, the survey revealed that business sentiment has improved as companies increasingly expect the crisis to abate sometime in 2021. “Perhaps their optimism reflects the news about vaccines,” comment Deloitte.
The Deloitte report showed that performance varied by country. In the United Kingdom PMIs moved in opposite directions in November. “The strength of manufacturing reflected, in part, strong export demand, especially in other parts of Europe. The fear of an imminent no-deal Brexit could be spurring precautionary purchases to avoid disruption once the new year begins,” said the report.
The PMIs for Japan remain below 50 and are not improving, indicating a continued decline in economic activity. “The weakness of Japan’s economy reflects not only weak domestic demand, but the impact on exports from weak global demand,” says the Deloitte report.
Deloitte commented that Asian trade relations are uncertain following the US election. “While the world waits to see what US President-elect Biden will do regarding trade policy, especially in Asia, China’s president said that China would consider joining the Trans-Pacific Partnership (TPP), the trade agreement from which the United States withdrew nearly four years ago.”
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.