Economic Conditions Snapshot, March 2016: McKinsey Global Survey
results
·
Executives’
optimism wanes—suggesting concern about where the economy’s heading in
2016—while their company views hold steady. A common worry is slowing growth in
China, which many cite as a threat to global growth.
Executives’ outlook on the economy is cautious and uncertain in McKinsey’s first
survey of the year on economic conditions.1Compared with the previous survey in December, when opinions took a
buoyant turn, respondents are now more likely to report negative than positive
views on both global and domestic economic conditions. This downward turn is
especially pronounced in developed markets, where, in the second half of 2015,
executives were much more bullish than their peers in emerging markets. At the
same time, their expectations for their companies remain strong. Eight in ten
executives expect that demand for their companies’ products and services will
grow or stay the same in the coming months, and a majority believe (as they
have in every survey since 2011) their companies’ profits will increase.
By contrast, there are broad concerns about China and
how its growth might affect the world economy. Executives most often cite
slowing growth in China (which we asked about for the first time) as a threat
to global economic growth in the next year, and a top-five threat to growth in
executives’ own countries. As a global risk, it ranks almost evenly with
geopolitical instability, which was the most common risk in the past eight
surveys.
Mixed
signals on economic conditions
In our December 2015 survey, respondents reported a much
rosier view of the global economy than we saw three months prior. But the
latest results indicate that executives’ budding optimism has waned—or perhaps
that executives have been struggling to discern which way the economic tides
will turn. Only one in five executives say conditions in the world economy have
improved in the past six months, down from 31 percent in December. Nearly half
(48 percent) now say conditions have worsened, up from 36 percent in the
previous survey.
Different from previous surveys, developed-market
executives are equally likely to be negative (rather than positive) as their
emerging-market peers; three and six months ago, they were much more bullish
than emerging-market executives . This shift is likely driven by respondents in
developed Asia, who are particularly pessimistic: 56 percent of respondents
there say the global economy is worse now than it was six months ago, similar
to the shares who say so in China, Latin America, and the Middle East and North
Africa.
Looking ahead, respondents tend to be pessimistic: while
29 percent believe global conditions will improve in the next six months, 32
percent expect conditions will worsen. Respondents were also downbeat six
months ago, when they were likeliest to predict that conditions would be worse
by now. So, based on the latest responses about current conditions, those wary
expectations for the global economy have borne out.
Regarding their home economies, developed-market
respondents continue to be more positive than their emerging-market peers. But
overall, responses from developed markets suggest growing concerns at home . In
developed Asia, respondents are again more negative than most others: 46
percent in that region say domestic economic conditions have worsened in recent
months, up from 31 percent in December—but similar to the share (40 percent)
there who, in September, predicted that conditions would be worse by now.
Looking to the months ahead, developed-market executives most often expect that
conditions in their home economies will hold steady; in emerging markets,
respondents most often to predict further decline.
China
in focus
One year ago, executives in China reported a notable
shift in expectations for their own economy—a gloominess about domestic
conditions that respondents there expressed throughout 2015. In the latest
survey, those in China remain mostly downbeat: 57 percent say economic
conditions at home have worsened in the past six months, while only 12 percent
say conditions are better. And now unemployment has emerged as a concern. Just
over half of respondents in China believe the Chinese unemployment rate will
increase in the next six months, up from 35 percent in December.
When we asked all executives about the
likelihood that China will meet the growth targets in its newest five-year
plan, for 2016 to 2020, they are about as skeptical as in December. Only 37
percent say it’s likely—and 53 percent believe it’s unlikely—that the plan’s
targets of 6.5 percent annual growth will be met. Those in China, though,
remain more optimistic than everyone else: they’re almost four times likelier
than all other executives to say meeting these targets is very likely .
For the first time, we also asked executives (both in
and out of China) about slowing economic activity in the country as a risk to
both global growth and growth in their home economies. Executives agree that,
in the short run, the slowdown in China has far-reaching implications for the
world economy. Asked to identify potential risks to global growth in the next
year, respondents are likeliest to cite the slowdown in China—it’s cited most
often in every region but Europe—followed closely by geopolitical instability,
which topped the list of global risks in our past eight surveys . When
executives consider the longer run, responses differ more by region. For
respondents in developed economies, the likeliest threats to global growth over
the next decade are instability in the Middle East and North Africa and debt
defaults, while their peers in emerging markets more often point to the
withdrawal of foreign investments and the volatility of oil prices.
On the domestic front, executives also rate slowing growth
in China among the top risks to growth in their home countries. It’s cited by
one-quarter of all respondents and is an outsize worry in developed Asia (61
percent) and China (45 percent). In the remaining regions, other challenges
loom larger. In the Middle East and North Africa, respondents most often cite
geopolitical instability, while political issues—either domestic political
conflicts or political transitions—are top of mind everywhere else.
Interestingly, at the company level, executives in China
report a different, more positive picture. While expectations for workforce
growth have declined in several regions since December (especially in Latin
America, developed Asia, and even India), respondents in China are more
optimistic that their workforce size will grow in the coming months. Thirty-two
percent say so, up from one-fifth three months ago. They report similarly
upbeat views of consumer demand for their products and services and their
companies’ profits, which are in line with overall strong company expectations
in other parts of the world.
Company-level
risks and opportunities
On average, executives’ expectations for their own
organizations—future demand, profits, workforce changes, and new investment or
deal opportunities—have held steady (and been mostly positive) over several
years’ worth of surveys. So to better understand what’s going on at the company
level, we asked about specific factors affecting company growth: where
respondents see risks and opportunities for their organizations in the coming
year.
For both questions, the results vary greatly by region
and by industry. The most common risks to growth in the next 12 months are
changing consumer expectations and low consumer demand—even though, when asked
separately about demand for their products and services in the next six months,
respondents overwhelmingly expect demand will grow or hold steady.
Across regions, respondents report outsize concerns.
Executives in developed Asia cite changing consumer needs more often than
others, while the pace of technological change is a bigger issue in India than
it is elsewhere, and scarcity of talent is a greater risk in China. And across
industries, low consumer demand is a greater risk in retail and transportation,
while the scarcity of talent is a bigger issue in professional services and in
high tech and telecom.
Overall, the most frequently cited opportunities are
operations improvements—especially in retail and transportation—and growth in
existing markets. By industry, the results suggest that partnerships and joint
ventures offer greater growth potential in the next year for transportation
companies, and that M&A is a greater opportunity in healthcare and pharma
than in other sectors. In financial services and in high tech and telecom, executives
are much likelier than others to cite shifts to new technologies as an
opportunity in the next year.
About the Authors
The contributors to the development and analysis of this survey include Luis
Enriquez, a director in McKinsey’s Brussels office, and Sven
Smit, a director in the Amsterdam office.
They wish to thank Alan FitzGerald, Krzysztof Kwiatkowski, and Vivien
Singer for their contributions to this article.
FOR EXHIBITS GO TO
http://www.mckinsey.com/Global-Themes/Employment-and-Growth/economic-conditions-snapshot-march-2016-mckinsey-global-survey-results?cid=other-eml-alt-mip-mck-1603
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