Economic Conditions Snapshot, December 2016: McKinsey
Global Survey results
In the
face of political transitions and concerns over trade, executives expect
improvements at home and a stable global economy—with some regional
divergences.
As executives look ahead to a new year, they
see political transitions as a leading risk to global and domestic growth—and
among the more pressing threats to their businesses—in McKinsey’s latest survey
on economic conditions.1In parallel,
slowing trade also has risen as a threat to global growth, especially for
respondents in China and developed Asia.2Despite these
uncertainties, executives are more positive than negative about economic
prospects at home and, as they have all year long, expect global economic
conditions to hold steady. Across regions, though, outlooks can vary.
Respondents in China and the United States report increasingly positive
expectations for their economies and believe growth rates will improve in
coming months, while opinions on the eurozone are mixed. Nearly everyone sees
more global volatility on the way.
Political transitions
at the fore
In our latest survey, transitions of political
leadership have risen in the rankings of threats to global, domestic, and
company-level growth in 2017. Political transitions are cited as a global risk
by 45 percent of all respondents, about twice the share that identified this
threat six months ago, while the share citing slowing global trade has also
grown in recent months.
Among risks to domestic growth, political transitions
top the list, as they did three months ago. Respondents in North America are
the likeliest to cite it, continuing a pattern that has been true all year. At
least half of respondents in the region (and in the United States more
specifically) have identified leadership transitions as a risk in the months
preceding the 2016 presidential election, which took place on November 8.
Even at the company level, political transitions have
emerged as a top five risk, replacing insufficient government-policy support in
the previous survey.3This risk
continues to be top of mind in Latin America, where respondents are also the
likeliest to identify leadership transitions as a global risk. Executives in
the region are likelier than the global average (32 percent, compared with 22
percent) to cite such transitions as a risk to their businesses’ growth. Three
months ago, too, respondents in Latin America reported above-average concerns
over the effects of leadership transitions on their companies.
Trade’s receding tide
Slowing global trade is cited by 40 percent of
respondents, up from 28 percent in September, as a risk to global growth. This
is the largest share identifying slowing trade as a risk to the world economy
since we began asking about it in March of this year. The emerging concern
coincides with the revised outlook
of the World Trade Organization (WTO) for
2016. The WTO estimates the rate of world trade growth at 1.7 percent for the
year (down from a forecast of 2.8 percent made in April), and noted that its
new estimate represents the slowest trade growth since the financial crisis.
Across regions, those in China and developed Asia are
the most concerned; executives in both geographies cite slowing global trade
most often, and much more often than their peers do. At the same time, their
fears over slowing growth in China seem to have subsided—or at least to have
become less acute, relative to other domestic or global risks. Just one-quarter
of respondents in China (compared with 53 percent in the last survey) cite
slowing growth in the country as a global economic risk.
Given their growing concerns over trade, it’s not
surprising that respondents in these regions are much likelier than average to
report declining trade levels over the past year . In contrast, those in Europe
are likeliest to say trade has increased.
When asked about the effects of changing (either
increasing or decreasing) trade levels on their companies’ business in the past
year, executives tend to report no effect. By region, though, respondents in
developed Asia, Latin America, and the Middle East are more likely to see a
negative effect than a positive one; the opposite is true of executives in
Europe and India. And when asked about future levels of trade, executives in
North America are the likeliest across regions to expect trade will decline in
the next six months. Forty-six percent say so, compared with 34 percent of the
total average. Respondents in Asia, too, are likelier than average to expect
declining trade in the coming months.
Views
on China and the United States grow more bullish—and for the eurozone, remain
mixed
On the whole, executives are sanguine about their home
economies’ prospects and prudent about conditions in the global economy, which
they expect will hold steady in the new year. At the regional level, though, some
differences emerge. As China’s slowing growth has become a less pressing
economic risk, executives there also report growing confidence.
Respondents in China are much likelier now than they’ve
been all year to say economic conditions at home have improved in the past six
months: 29 percent say so, more than twice the share that said the same in June
or March. And while these respondents most often expect stable conditions in
coming months, they are increasingly optimistic about the future. Globally, executives
are also bullish on China’s prospects. Fifty-three percent of all respondents
(and 64 percent of those in China) believe that in 2017, China will hit the
annual growth targets of its current five-year plan.
In the United States, views on overall economic
prospects for the nation are rosy, despite the outsize concerns over political
transitions that executives there cite. When asked about future economic
conditions at home, respondents in the United States are much likelier to
expect improvements than their peers—except for those in India, who have been
the most bullish for the past 12 surveys. As with China, executives around the
world are optimistic about US growth: 65 percent of all respondents (and 69
percent in the United States) expect at least a minimal increase in the
country’s growth rate in the next six months.
Elsewhere, economic prospects seem more mixed and less
certain. Within the eurozone, for example, respondents are more positive than
negative about future conditions in their home countries—and they’ve been more
upbeat than gloomy about future conditions all year long.5Executives in the
eurozone also predict their overall economy will grow: 53 percent expect at
least a minimal increase in the eurozone’s growth rate in the next six months.
Globally, though, respondents are much more pessimistic about this region. Only
35 percent expect the eurozone’s growth rate to increase; a similar share said
so in September, when eurozone respondents were also much more optimistic than
their peers in other regions.
In India, respondents—who have long reported
exceptionally positive views—remain buoyant, though notably less so than in
recent surveys. They are still much likelier than average to report improved
economic conditions at home and to expect continued improvements. But the
shares now saying so have declined from earlier this year. Three months ago,
three-quarters of executives in India reported improved conditions at home, and
91 percent said they expected future conditions would improve. Now, only 51
percent and 72 percent, respectively, say the same.
And
while executives’ overall expectations for the world economy are tempered, most
respondents foresee increasingly volatile conditions. Fully 70 percent believe
the level of global economic volatility will increase in the next 12 months, and
majorities in every region expect more volatility rather than less. The largest
share to say so is in North America, and the results suggest diverging views
from developed and emerging markets: 76 percent of developed-market respondents
expect volatility to increase, while only 60 percent of their emerging-market
peers say the same.
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