Economic Conditions Snapshot, March
2017: McKinsey Global Survey results
Respondents
report renewed optimism on the economy. But political and trade-related risks
continue to loom.
Executives are more upbeat about current economic conditions—both globally
and in their home countries—than they were for all of 2016, in McKinsey’s
latest survey on the topic.They are nearly twice as likely as in the past two
surveys to say conditions in the world economy have improved in recent months,
and they report notable improvements in their home economies, too. Their views
on the future, though, are more tempered. Respondents are more optimistic than
not about economic prospects but doubt conditions will improve much more than
they already have.
Despite the growing bullishness,
respondents continue to cite political and trade-related risks most often as
threats to growth. Changes in trade policy, which we asked about for the first
time in this survey, are an outsize risk in developed economies. They are a
particular sore spot in the United States, where respondents are the most
likely to cite such changes as a risk to both global and domestic growth. When
asked about risks at the company level, the largest share of respondents say
regulatory changes are threats to their businesses.
A
turnaround in global views, though geopolitical and trade concerns prevail
Overall, executives are much more bullish
about the global economy than they were for all of 2016 . Nearly half of them
say conditions in the world economy are better now than they were six months
ago—far surpassing expectations from six months prior, when only 28 percent
expected improvements. While they are also more optimistic about the world
economy’s prospects, respondents aren’t convinced that the future will be much
rosier. Forty-two percent believe conditions will improve, a slightly smaller
share than say conditions have improved in recent months. Across regions,
respondents in developed economies are less upbeat about the future than they
are about current conditions. In Asia–Pacific, for example, almost half of
respondents say global conditions have improved in recent months, but only
one-third predict further improvements in the next six months.
Despite this newfound positivity, the same
issues that executives identified three months ago as threats to global
growth—geopolitical instability, politics, and trade—still loom . Geopolitical
instability has been the most identified risk for the past three surveys. A
slowdown in global trade—which rose on the list of risks in December—is now
less of a concern, while more than four in ten respondents cite changes in
trade policy, which we asked about for the first time. Policy changes are
especially top of mind for executives in North America, Latin America, and
Asia–Pacific.
Other responses suggest a growing
sanguinity about the pace of global trade. Executives are more likely to say
that trade between their home countries and the rest of the world has increased
in the past 12 months, rather than stayed the same or decreased. Views on trade
are especially positive in Asia–Pacific. Just three months ago, respondents in
the region were the likeliest to report declining trade: half
of respondents there said trade levels had declined, compared with one-third of
all respondents. Now they are twice as likely to say trade has increased than
declined, much less likely than in December to say the change in trade levels
has harmed their business (16 percent now, down from 43 percent), and likelier
to believe trade levels will increase rather than decrease in the year ahead.
Their peers in North America, though, are
much less optimistic. Respondents in the region are the least likely to say
trade levels have increased in the past 12 months—followed closely by those in
the Middle East and North Africa and in other developing markets, who tend to
report declining trade. Looking ahead, they are the most likely to expect
decreasing trade levels. Fifty-two percent in North America predict trade
between their home countries and the world will decline in the next year,
compared with a global average of 35 percent.
Steady
buoyancy and consistent political concerns at home
As we saw at the global level, executives
are increasingly positive about conditions at home. Forty-five percent of all
respondents say domestic economic conditions are better now than six months
ago, up from 35 percent in December and 30 percent in September. In addition,
respondents in all but one region—the Middle East and North Africa—report
improvement more often than decline.
Those in North America and in India are
the most positive about conditions at home, which was also true in the previous
survey, and respondents in Latin America and Asia–Pacific are two and three
times likelier now to report improving conditions.
Looking ahead, executives are just as
likely (43 percent) to say that future conditions will be better. And while
developed-economy respondents are likelier than their peers elsewhere to say
current conditions have improved, emerging-market respondents are more optimistic
about the future .
We also asked all respondents about the US
economy’s prospects, and views vary widely from region to region. Respondents
in the United States are more optimistic than not, with 49 percent predicting
the economy will improve in the next six months. The most bullish are their
peers in Asia–Pacific and developing markets: 63 percent and 56 percent,
respectively, expect improvements. The most skeptical of the US economy’s
prospects are executives in Europe and Latin America. Only 35 percent in each
region believe US conditions will improve.
When respondents identify risks to
domestic growth, political risks are top of mind (as they were in December),
along with a new option, changes in trade policy. Changes in trade policy are
an outsize risk in developed markets, where respondents are more likely than
their emerging-market peers to express concern over it—and especially in the
United States, where 47 percent of respondents (compared with 27 percent of all
others) cite it. Another new risk, the impact of technology on jobs, is cited
most often by respondents in India.
At the
company level, new pain points
One year ago, we began asking executives
about company-level risks to and opportunities for growth, and the risk
landscape has shifted somewhat since. In March 2016, the most commonly cited
risks were changing consumer needs, low demand, and scarcity of talent—and the
shares of executives naming each one have decreased in the past year. Roughly
one-third of respondents identified scarcity of talent as a risk 12 months ago,
while just one-quarter cite it in the latest survey. Now the largest share of
executives cite changes in the business and regulatory environment (41
percent), which is new to the list. One-quarter of respondents identify another
new option: changes in the trade environment. Regulatory changes are the top
concern in several regions, while respondents in Latin America most often
express concern with decreasing demand, and those in the Middle East and North
Africa with changes in the trade environment.
When asked about regulatory and trade
changes as opportunities for their businesses’ growth, these
two issues fall near the bottom of the list. They are cited by 12 percent and 5
percent, respectively, of all respondents. Executives in the United States,
however, are twice as likely as all others (20 percent, compared with 10
percent) to identify changes in the regulatory and business environment as an
opportunity. Globally, the opportunities that top the list are the same as a
year ago: growth in existing markets, operations improvements, and expanded
and/or new offerings.
And while low demand remains a widely
cited risk, other results suggest that overall expectations for demand are
actually up. For the first time since June 2015, a majority of respondents
predict that demand for their companies’ products or services will increase in
the next six months. Across regions, respondents in India report the most
bullish expectations for demand: 71 percent predict an increase, up from 54
percent there who said so in December.
http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/economic-conditions-snapshot-march-2017-mckinsey-global-survey-results?cid=other-eml-alt-mip-mck-oth-1703
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