Global CEO sentiment improves but geo-political instability could scupper progress

15 January 2018 4 min. read
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CEOs are more upbeat than about their growth prospects, particularly in Europe. However, political strains such as Brexit and the incumbent Whitehouse administration remain key risks to growth. According to a new report, instability arising from unpredictable events including Brexit continue to cause uncertainty.

In a new report into the sentiment of CEOs, McKinsey & Company surveyed 1,407 executives across all global regions. The paper, titled ‘Economic Conditions Snapshot’, forecasts that in most regions, economic conditions are expected to improve in the coming six months. Outlooks from respondents in Europe expected conditions to be the same, at 44%, while 38% are expecting conditions to improve. In the Asia-Pacific region, mixed results saw 32% expecting conditions to get better, 28% worse and 40% to remain the same. In India, almost three quarters, or 73%, of respondents expect improvement, while almost half (48%) expect conditions to improve in North America.

In terms of current conditions compared to six months ago, the research noted considerable reflection towards improved conditions, particularly among European respondents. Sentiment among the continent’s CEOs rebounded with 61% suggesting that the economy was improving, followed by Latin America (58%) and India (57%). 27% of those in developing markets, however, were concerned that conditions had deteriorated.

Economic sentiment.

In terms of the top-three risks to growth, domestic political conflicts was the most often cited, at 36% of respondents, followed by geopolitical instability, at 32%. The popping of an asset bubble increased slightly, to 22%, while changes in trade policy was noted as a concern by 21% of respondents.

Different regions have varied results in terms of impact from high-ranked risks. In North America, domestic political conflicts were noted by 52% of regional respondents as a risk in the top-three, followed by change in trade policy and geopolitical instability. In Europe, the top concern was geopolitical instability, followed by domestic political conflicts. In the Asia-Pacific region, geopolitical instability was by far the most concerning, at 54% of respondents, followed by an asset bubble at 25% of respondents. Risk to global grow

In terms of key risks to global growth over the next 12 months, global instability has climbed steadily, with the risk increasing from 50% to 72% over the final two quarters of 2017. This was partly thanks to key uncertainties, such as North Korea and Iran, ramping up toward the year’s end. Changes in trade policy, particularly regarding Brexit and the Presidency of Donald Trump, are seen as increasingly unlikely in the next 12 months, from 42% citing it as a potential risk in March to 27% in the latest survey. Concern around an asset bubble has increased from 14% to 27%, while concerns around the slowdown of the world’s second largest economy has decreased by 3 percentage points to 21% of respondents.

In the long-term, geopolitical concerns centred on the Middle East and North Africa have decreased from 35% to 32%, while rising income inequality is seen as a growing problem, up from 29% in June to 32% in the latest survey. Geopolitical instability in Asia has rocketed up the scale of concern, from 16% in June to 31% of respondents in the latest report. Volatility across global financial markets has remained relatively stable in terms of concern, at 26%, relative to 25% in the previous survey.Long-terms trendsIn terms of the emerging trends that have the biggest potential effect on companies’ business in the coming decade, a divergence between advanced and emerging economies is noted. Developed economies are particularly aware of the effects of technology, with 62% citing the ‘cumulative effect of technological innovation’, compared to 43% of all respondents. Threats from technology related threats, such as cybercrime, as well as terrorism, are also noted as the biggest concerns in developed economies (30%) compared to emerging ones (18%).

Emerging economies, meanwhile, cited development in energy and resource management as a key trend (27%) compared to 15% of developed economy respondents. In addition, new economic, social and regulator policies were cited by 42% of emerging economy respondents and by 33% of developed market economies.