CEO confidence in economy slides from buoyant to glum
What a difference two years can make. Just two years ago, CEO confidence regarding worldwide economic growth was at a 20-year high, and now, as CEOs look ahead to 2020, global leaders face a record level of pessimism. This is according to PwC’s Global CEO Survey launched at the World Economic Forum Annual Meeting in Davos.
The survey, held among over 1,500 chief executives in 80+ countries, found that for the first time since 2012, half of the CEOs surveyed believe the rate of global GDP growth will decline. Fifty-three percent project a decline in the rate of global economic growth, up sharply from 29% last year.
This does not, however, mean that the economy will necessarily shrink. Economic indicators in many markets remain positive, with unemployment in the OECD countries at a record low 5.1% in 2019, measures of global consumer confidence elevated and buoyant financial markets.
As a result, growth continues to be the dominant outlook among CEOs, which is consistent with most economic forecasts as the global economy heads into its 11th year of expansion. In its October 2019 forecast, the International Monetary Fund for instance predicted 3% growth for 2020, although the rate is the slowest pace since the global financial crisis.
In PwC’s study, the prevailing sentiment that global economic growth will slow in 2020 is consistent across every region: Africa, Asia-Pacific, Europe, Latin America, the Middle East and North America. The percentage of CEOs citing a decline in the rate of growth exceeds 50% in all but two regions: Asia-Pacific and Central Eastern Europe.
Nowhere has the swing in confidence been more pronounced than in North America, where a record 63% of chief executives believe the global growth rate will decline. Two years ago, the same record share of North America CEOs (63%) said the opposite, that the growth of the global economy would accelerate.
Uncertainty and Industry 4.0
Two main factors are at the basis of the sliding in confidence. Growing uncertainty for one, caused by trade tensions, geopolitical issues and the lack of agreement on how to deal with climate change. While these challenges are not new, “the scale of them and the speed at which some of them are escalating is new,” said Bob Moritz, Chairman of PwC.
As one CEO present at Davos put it, “The uncertainty we see today is unprecedented in the last 40 years. As a result, it’s taking growth out of the global economy.”
Second, the outsized productivity gains promised by the fourth industrial revolution, the collection of technologies known as Industry 4.0 that are reshaping the way people live and work, have yet to materialise at a large scale. Such technologies include artificial intelligence (AI), robotics, the Internet of Things (IoT) and machine learning.
In a 2015 study by PwC and subsidiary Strategy&, the researchers predicted that Industry 4.0 would “transform the competitiveness of European industries”, adding €550 billion in additional revenues in five years’ time. How much of that number has been realised is unknown, yet clear is that Industry 4.0 adoption and the benefits reaped from its adoption have lagged initial projections.
Company performance?
Not surprisingly, concerns over slower global growth are filtering into CEOs’ views of their own progress. The share of CEOs claiming to be ‘very confident’ about revenue growth for both the short-term (12-month) and medium-term (three-year) frame has declined to levels not seen since 2009, just as the economy was beginning to recover from the global financial crisis.
“While there is record pessimism amongst business leaders, on a brighter note, there are still real opportunities out there. With an agile strategy, a sharp focus on the changing expectations of stakeholders, and the experience many have built up over the last ten years in a challenging environment, business leaders can weather an economic downturn and continue to thrive,” remarked Moritz.
