Globally, confidence in the economic conditions for the coming six months are the most positive from a European perspective and the most negative from a North American one, research by McKinsey & Company shows. Regionally, respondents in emerging markets are considerably more downbeat about conditions in the coming six months than their developed region counterpart. Geopolitical situations remain the dominant risk for the coming 12 months, followed by economic volatility.
A recently released McKinsey & Company report, titled ‘Economic conditions snapshot 2015’, explores the intuitions of 1,452 executives on the state of the global and local economies over the short- and mid-term. The report cuts across the full range of regions, industries, company sizes, functional specialties and tenures.
This years’ survey shows that last year’s projections about the current economic conditions in which executives find themselves are not congruent with how things turned out. Last year, executives were expecting positive mid-2015 economic conditions in general. At the end of last year, 40% of executives from emerging markets expected conditions to improve, which fell to 24% in March this year, with June this year only finding 27% of executives expecting improved conditions. Developed markets on the other hand have seen slight improvement in expected conditions, up from 41% at the end of last year to 45% as of June this year.
At the global level, particularly European CEOs are upbeat about the economic conditions. Almost half (46%) believe conditions will improve moderately in the coming six months, 4% that they will be substantially better and only 9% that they will be substantially worse. While Europe is expecting high economic times globally, both Latin America and North America are expecting conditions to be more adverse. Only 27% of North American executives expect improvement and 28% expect deterioration in conditions. Latin America, while slightly more positive among executives - with 37% expecting improvement, also holds a considerable number of downbeat executives, at 28%.
Looking at confidence in regional economic conditions, considerable variations are found. Particularly Latin America is expecting poor results, with 59% of respondents continuing to expect economic conditions to decline for them. The Asia-Pacific region has seen the biggest drop in executives expecting a better outcome from 64% in March to 45% in June. North America also saw a sharp drop in expectations, down from 56% in March to 45% in June. India, while seeing a drop in confidence, remains one of the strongest regions. 80% of executives is still confident of good outcomes for the region, even if it is down from 93% in March.
The survey also asked respondents to name some of the wider context and situations that are likely to create negative risks to economic growth in the short-term (next 12 months). The biggest issue remains geopolitical instability, both at the national and international level. Nationally, the risk increased 24% last year to 26% this year, while at the global level the risk jumped from 60% last year to 74% this year.
Economic volatility also increased significantly on last year; from 15% to 25% at the local level and from 22% to 34% internationally. Exchange rate volatility also saw a considerable increase, now at 22% on both the national as the international level. In addition, a sovereign debt default, with Greece the likely entity, increased significantly internationally since last year up from 9% last year to 39% this year. Although by all accounts this risk has now abated.
The consulting firm developed four scenarios with general predictions about the coming decade. The first is the ‘pockets of growth’ that represents uneven, volatile, but high levels of global growth. A ‘global downshift’ describes a situation in which growth is lower but more resilient. A scenario of ‘global synchronicity’ represents a period of globally distributed growth and broad increases in productivity. A fourth scenario, ‘rolling regional crises’, describes volatile and weak global growth.
For the most part, respondents indicate that ‘pockets of growth’ or ‘global downshift’ would be the most likely outcome of the global economy in the coming decade. Although particularly emerging market executives are upbeat about a ‘global synchronicity’ to form, being twice as likely as developed-market executives to rank as the most likely outcome for the decade ahead.