CEO confidence falls dramatically

Jan 28, 2019
Survey reveals record jump in pessimism

Nearly 30 percent of company leaders believe global economic growth will decline over the next 12 months, according a new annual survey.

This figure is six times higher than last year, when just 5 percent of company leaders felt this way – a record jump in pessimism.

The outlook is one of the key findings of PwC’s 22nd annual survey of 1,300+ CEOs around the world, and is in stark contrast to last year’s record jump (from 29 percent to 57 percent) in optimism about global economic growth prospects.

But not all is doom and gloom: 42 percent still see an improved economic outlook, though this is down significantly from a high of 57 percent in 2018.

Overall, CEOs’ views on global economic growth are more polarized this year but trending downward. The most pronounced shift is among CEOs in North America, where optimism has dropped from 63 percent in 2018 to 37 percent, likely due to fading fiscal stimulus and emerging trade tensions.

The Middle East has also seen a big drop in optimism, from 52 percent to 28 percent, due to increased regional economic uncertainty.      

The drop in CEO optimism has also hit growth plans beyond the CEOs’ own country borders. The US narrowly retains its position as the top market for growth at 27 percent, down significantly from 46 percent in 2018. The second-most attractive market, China, also sees its popularity fall to 24 percent, down from 33 percent in 2018. Overall, India is the rising star on the list this year, recently surpassing China as the fastest-growing large economy.

‘CEOs’ views of the global economy mirror the major economic outlooks, which are adjusting their forecasts downward in 2019,’ says Bob Moritz, global chairman at PwC, in a statement. ‘With the rise of trade tensions and protectionism, it stands to reason that confidence is waning.’

The unease about global economic growth is lowering CEOs’ confidence about their own company’s outlook in the short term: 35 percent say they are ‘very confident’ in their own organization’s growth prospects over the next 12 months, down from 42 percent last year.  

Taking a closer look at some country-specific results:

  • In China, optimism levels have dropped from 40 percent in 2018 to 35 percent this year due to trade tensions, US tariffs and weakened industrial production
  • In the US, levels are down from 52 percent to 39 percent due to trade tensions and the slowing economy
  • In Germany, the decrease is from 33 percent to 20 percent due to trade tensions, the slowing economy and the risk of a disorderly Brexit
  • In Argentina, optimism has fallen from 57 percent to 19 percent due to recession and currency collapse
  • In Russia, optimism has dropped from 25 percent to 15 percent due to a decline in export demand, currency volatility and higher unemployment.

To drive revenue this year, CEOs plan to rely primarily on operational efficiencies at 77 percent and organic growth at 71 percent.

Confidence in US continues despite dip

The US retains its lead as the top market for growth over the next 12 months. But many CEOs are also turning to other markets, reflected in the dramatic drop in the share of votes in favor of the US, from 46 percent in 2018 to just 27 percent in 2019. China has narrowed the gap, but also sees its popularity fall from 33 percent in 2018 to 24 percent in 2019.

As a result of the ongoing trade conflict with the US, China’s CEOs have diversified their markets for growth, with only 17 percent selecting the US, down from 59 percent in 2018.

The other three countries rounding out the top five for growth are Germany at 13 percent, down from 20 percent, India at 8 percent, down from 9 percent, and the UK at 8 percent, down from 15 percent.

‘The turn away from the US market and shift in Chinese investment to other countries are reactions to the uncertainty surrounding the ongoing trade dispute between the US and China,’ states Moritz.

Threats to growth

As indicators predict an imminent global economic slowdown, CEOs have turned their focus to navigating the surge in populism in the markets where they operate.

Trade conflicts, policy uncertainty and protectionism have replaced terrorism, climate change and increasing tax burdens in the top 10 list of threats to growth.

Of CEOs ‘extremely concerned’ about trade conflicts, 88 percent are specifically uneasy about the trade issues between China and the US: a whopping 98 percent of US CEOs and 90 percent of China’s CEOs have voiced these concerns.

Of China’s CEOs who are ‘extremely concerned’ about trade conflicts, a majority are taking a strong reactive approach, with 62 percent adjusting their supply chain and sourcing strategy. Fifty-eight percent are adjusting their growth strategy to different countries.

Data & analytics and AI

This year’s survey takes a deep dive into data & analytics and artificial intelligence (AI), two key areas on leaders’ radar, to get CEOs’ insights on the challenges and opportunities.

This year’s survey revisits questions about data adequacy first asked in 2009 and finds that CEOs continue to face issues with their own data capabilities, resulting in a significant information gap, 10 years on.

Despite billions of dollars of investments made in IT infrastructure over this period, CEOs report still not receiving the comprehensive data needed to make key decisions about the long-term success and durability of their business.

Leaders’ expectations have certainly risen as technology advances, but CEOs are keenly aware that their analysis capabilities have not kept pace with the volume of data, which has expanded exponentially over the past decade. When asked why they do not receive comprehensive data, CEOs point to the ‘lack of analytical talent’ (54 percent), ‘data siloing’ (51 percent) and ‘poor data reliability’ (50 percent) as the primary reasons.  

When it comes to closing the skills gap in their organization, CEOs agree there is no quick fix. Forty-six percent see significant retraining and upskilling as the answer, with 17 percent also citing establishing a strong pipeline directly from education as an option.

‘As technological changes continue to disrupt the business world, people with strong data and digital skills are in even higher demand and increasingly harder to find,’ explains Moritz. ‘That said, the need for people with soft skills is also critical, which is why business, government and educational institutions need to work together to address the demands of the evolving workforce.’

Eighty-five percent of CEOs agree AI will dramatically change their business over the next five years. Nearly two thirds view it as something that will have a larger impact than the internet.

Despite this bullish view, 23 percent of CEOs have ‘no current plans’ to pursue AI, with a further 35 percent ‘planning to do so’ in the next three years. Thirty-three percent have taken ‘a very limited approach’: fewer than 1 in 10 CEOs have implemented AI on a wide scale.

When it comes to the impact AI will have on jobs, 88 percent of China’s CEOs believe it will displace more jobs than it creates. Other Asia-Pacific CEOs are also pessimistic on the issue at 60 percent, compared with 49 percent globally. CEOs in western Europe and North America are less doubtful, with just 38 percent and 41 percent, respectively, believing AI will displace more jobs than it creates. 

‘Although organizations in Asia-Pacific, North America and western Europe have reported comparable levels of AI adoption, we see a growing divide over their belief about the potential impacts of AI on society and the role government should play in its development,’ notes Moritz.  

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