CEOs generally upbeat despite geopolitical instability

15 August 2017 Consultancy.uk

Geopolitical instability remains a key concern for CEOs, however they remain generally upbeat about domestic conditions, particularly in Europe and North America. According to McKinsey & Company’s latest ‘Economic Conditions Snapshot’ survey, while trade concerns continue, companies are expecting increases in demand – particularly in developed economies.

The most recent ‘Economic Conditions Snapshot’ from McKinsey & Company saw 1,161 global CEOs interviewed across all business segments, about current conditions and future threats. Geopolitical instability tops the list of risks across all segments globally, and has seen considerable growth over the past three months. 71% of European respondents said geopolitical instability is a risk to the global economy for the next 12 months, up from 55% in March. In North America meanwhile the numbers are also up, hitting 65% of respondents, from 50% in March, as uncertainty surrounding Brexit and the Trump Presidency see both regions businesses unclear as to the future of tariffs on exports, among a number of other issues.

However, the Middle East and North Africa has seen the highest increase, up from 56% in March to 85% in June. Across developing markets as a whole, the total citing geopolitical instability was relatively low, up just 5%, from 50% in March to 55% in the latest survey.

Long-term threats

In the long-term, as potential risks to global economic growth over the next ten years, geopolitical instability in the Middle East and North Africa ranks highest, at 35% of respondents, down on September last year when it stood at 43%. The perceived threat of terrorism is also up slightly on September last year, at 31% vs. 21%.

Risks from a slowdown in China are down slightly, while the rise in income inequality makes the list for the first time, with 29% ranking it as a potential risks. Global financial market volatility has decreased slight, from 31% in September last year to 25% in the latest survey.

Positive about domestic conditions

McKinsey’s researchers found respondents had varying sentiments about economic conditions in their home markets compared to six months previous. Indian respondents were the most positive, with 60% saying conditions have improved vs. 21% that conditions have worsened. In Europe, 55% say that conditions have improved, while 17% say that they have worsened.

North American respondents too are more upbeat, with 48% cited conditions are better and 13% saying that they are worse. Across all developing markets however, a mixed-bag result was discovered, with 36% saying conditions are better and 31% saying that they are worse.

Changes in trade volumes

The consulting firm’s analysis also found respondents were also asked to indicate in how far trade levels between respondents’ and the rest of the world have fared in the past 12 months, and how they will fare in the coming 12 months. The research noted considerable differences between developed and emerging economies.

Trade prospects

Trade continues to be an area of political debate, with wide ranging consequences, however, emerging economies remain upbeat about prospective trade volumes, with 7% saying levels will increase significantly, and 43% saying that they will increase somewhat. The United States has demonstrated an increasing appetite for imports recently, suggesting demand for exports will continue to grow globally, leading to this improved confidence, which shows economies as somewhat more positive on trade with 6% of stating they expected a significant increase, and 38% of whom said there would be some manner of an increase.

Developing economy respondents are a little more pessimistic, with 37% expecting somewhat of an increase and 2% significant increase. 29% meanwhile expect somewhat of a decline. Remarking on the changes, the authors state in the report, “What’s more, emerging-market respondents are more upbeat than their peers about future trade prospects, and they are less likely to cite changes in trade policy as a risk to domestic growth, which was also true in March.”

Increase in customer demand

Most respondents expect there to be a change in demand for their companies’ products and services in the coming six months, with developed economy respondents increasingly positive – 55% say in the latest survey that they expect increases, up from 50% in December 2016. In emerging economies the number of increasingly positive respondents too is up, from 41% in December last year to 55% in the latest survey.

The authors meanwhile note that particularly emerging market respondents are positive about profitability, concluding that, “for the first time since March 2016, a larger share of emerging-market executives than developed-market executives predict their companies’ profits will increase in the next six months. At the regional level, those in India and in other developing markets are the most bullish on their companies’ prospects.”

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