The confidence levels of global CEOs are at their lowest ebb than at any other time in the last three years, according to a report released Tuesday by PwC.
PwC’s 19th annual “Global CEO Survey,” published on Tuesday showed a marked decrease on last year in CEO confidence in the global economy, a sharp increase in geopolitical uncertainty, CEOs confidence in their own businesses’ performance falling, and worries over the availability of talent, exchange rate volatility and over-regulation remaining at a high level of concern.
CEOs’ pessimism has been heightened by huge global events including security concerns, conflicts in the Middle East, crude oil price declines, and China’s recent economy rebalancing.
Speaking to Business Insider over the phone ahead of the report’s release, PwC chairman Dennis Nally agreed the report makes for “sober reading.”
He said the survey, of more than 1,400 CEOs across 83 countries, largely took place in the fourth quarter of 2015. “I can only imagine what would have happened if we had fast-forwarded to over the past couple of weeks. I can only imagine it would be more sobering in terms of the environment we are dealing with.”
Geopolitical concerns jump up the agenda
In last year’s survey, geopolitical uncertainty appeared in the top 10 ranking of CEO concerns for the first time. This year, the topic jumped up to become the second-biggest concern, cited by 74% of business leaders.
The report notes that this comes at a time when terror attacks are increasing all over the world, with many linked to the conflicts in Iraq and Syria.
Nally said the threat of terrorism wasn’t broken out as a separate item in the survey, but it could be part of the broader topic of political concerns — “It wouldn’t surprise me if it is, quite frankly,” he said, with a PwC spokesman adding that the survey took place right in the middle of the most recent Paris terror attacks, which may have had an impact.
CEOs are less confident about the economy’s growth — and their own company’s revenue growth
Globally, barely more than a quarter (27%) of CEOs think global growth will improve this year, down from 37% last year.
Pessimism among CEOs about the global economy is rife: 23% of CEOs believe global economic growth will decline:
The negative outlook continues into CEOs own companies. The survey shows only just over a third (35%) of CEOs are “very confident” of their own company’s growth, down four percentage points on last year — and one point below 2013.
Lally said: “We are in a very, very challenging environment collectively around the world. Whether it’s the economic environment, the political environment … we are clearly in a period of slow economic growth and there are very few bright spots that you’d really point to. I think it’s going to be really interesting to see, ultimately, the tone of [the World Economic Forum’s annual meeting in] Davos this year.”
He added: “I think many of us would have expected that so many years post the financial crisis we’d be on a much more optimistic trend than what it is today. In fact, the trend line, if you go back over the last several years is actually decreasing when you look at optimism and confidence.
Pessimism leads to old comforts
Nally notes in the press release attached to the report that the pessimistic outlook is reinforced by CEOs once again positioning “safe havens” US (39%,) China (34%,) Germany (19%,) and the UK (11%) as the “most important” geographies for growth. CEOs were asked which three countries, outside the one in which they were based, were most important for their overall growth prospects this year.
He says the position of those companies as the top areas for investment among CEOs is not too dissimilar to last year’s findings.
“I think what it says is given the volatility and instability that exists in many developing markets, now China, obviously what’s happening in Brazil, the Middle East, etcetera, etcetera, I think there’s a real concern about that environment being ripe for the kinds of investments CEOs are prepared to make — in the near-term anyway.” Lally said.
Last year Indonesia featured in the top 10 areas for investment, but it doesn’t appear this year. Investment flows back to countries with consistency and predictability, Lally said.
He added: “Even though in a place like India — where confidence levels are really, really high and almost the highest in the survey — you still don’t see from an investment standpoint the international community jumping on the bandwagon that India is going to be a significant place for investment [just 9% of CEOs think it is the most important country for growth.] I think many are waiting to see whether the reforms that [Prime Minister Narendra] Modi has announced that he’ll be putting through and whether he can get the job done. Yet again, it’s a cautionary reaction to a market environment that otherwise should probably be the most growth-oriented environment across the globe today.”
New ways of working also lead to growing concerns
The availability of key skills was cited as the fourth-biggest concern among CEOs, at a time when 48% of business leaders plan to increase their headcount (down from 50% last year.)
Those working in the entertainment and media, and the technology industry had the highest levels of concern, followed by sectors aligned with “STEM” skills such as manufacturing and pharmaceuticals.
It’s not just about finding the talent — a big concern is also around adapting businesses to younger recruits.
Lally said: “Millennials want to be part of an organisation that’s making a much bigger, broader contribution to society today than what existed five to 10 years ago. It’s about an organisation’s purpose, what it stands for, what it’s trying to accomplish for the greater good.”
Is there a positive to be taken from this report?
Perhaps the one positive to be taken from the report is that CEOs are no longer insular, planning the long-term futures of their businesses based on their own companies, industries, or markets.
Having seen companies that were too big to fail crash and burn, and seen entire industries disrupted by innovators like Uber and Airbnb, CEOs are taking a more measured and macro approach to planning for the future.
Lally said: “I do think CEOs are working in a much broader way, a much more strategic way, in order to position themselves for longer-term success and longer-term sustainability.”