From CEOs: Optimism Prevails on Global Growth Prospects

By Patricia Van Arnum - DCAT Editorial Director

January 24, 2018

So what is on the minds of CEOs? PwC’s annual study released this week at the World Economic Forum in Davos, Switzerland shows a record-breaking level of optimism among CEOs about global economic prospects, at least in the short term. So what did the study show?

The study surveyed almost 1,300 CEOs in 85 countries, and more than half (57%) said that they believe global economic growth will improve in the next 12 months, which is almost twice the level of last year (29%) and the largest ever increase since PwC began asking about global growth in 2012. Despite the optimism in the global economy, however, the survey showed concern among CEOs on a much broader range of business, social,and economic threats, such as geopolitical uncertainty, cyber threats, terrorism, and availability of key skills. DCAT Value Chain Insights examines the issues.

Inside the minds of CEOs

A record-breaking share of CEOs are optimistic about the economic environment worldwide, at least in the short term, according to PwC’s 21st survey of almost 1,300 CEOs around the world, which was released at the World Economic Forum Annual Meeting in Davos, Switzerland. Fifty-seven percent of business leaders say they believe global economic growth will improve in the next 12 months, which is almost twice the level of last year (29%) and the largest ever increase since PwC began asking about global growth in 2012. The survey involved 1,293 interviews with CEOs in 85 countries between August and November 2017. Revenues of companies: 40% had revenues of $1 billion or more; 35% of companies had revenues between $100 million and $1 billion; 20% of companies had revenues of up to $100 million; 56% of companies were privately owned.

Optimism in global growth has more than doubled in the US (59%) after a period of uncertainty surrounding the US election (2017: 24%). Brazil also saw a large increase in the share of CEOs who are optimistic that global growth will improve (+38% to 80%). Even among the less optimistic countries such as Japan (2018: 38% vs. 2017: 11%) and the UK (2018: 36% vs. 2017: 17%), optimism in global growth has more than doubled since last year, according to the study.

“CEOs’ optimism in the global economy is driven by the economic indicators being so strong,” said PwC Global Chairman PwC Bob Moritz, in commenting on the study. “With the stock markets booming and GDP [gross domestic product] predicted to grow in most major markets around the world, it’s no surprise CEOs are so bullish.”

Company expectations

This optimism in the economy is feeding into CEOs’ confidence about their own companies’ outlook, even if the uptick is not as large and differs among regions. The study showed that 42% of CEOs said they are “very confident” in their own company’s growth prospects over the next 12 months, up from 38% last year. Regionally, North America (defined as the US and Canada for this study), Latin America, Central & Eastern Europe, and Asia-Pacific reporting higher levels of “very confident,” and the rest of the world moving in the opposite direction, according to the study. In the US, CEOs’ confidence increased from 39% in 2017 to 52% in 2018, part of a larger positive outlook by CEOs in North America. North America was the only region where a majority of CEOs said that they were “very confident” about their own 12-month prospects. Nearly two-thirds of CEOs in North America report that they believe global economic growth will improve, and a majority indicate that they are “very confident” about their own company’s revenue growth in 2018.The last time North American CEOs were this positive was in 2007, the year before the global financial crisis, according to the study.

When asked what will drive that growth, North American CEOs point to organic growth (94%), followed by new mergers and acquisitions (M&A) (61%), and cost reduction (59%). North American CEOs’ reliance on mergers and acquisitions as compared with the rest of the world is higher. Sixty-one percent of CEOs in North America cite M&A as a growth driver as compared with the next highest region, Western Europe at 45%, and a global average of 42%.

CEO confidence in the US market extends overseas, with non-US based CEOs once again voting it the top market for growth in the next 12 months. The 2018 PwC study showed that the US was cited as the market in which CEOs had greatest confidence in from a growth-prospect, with more CEOs confident in its growth prospects compared to the second leading country, China in 2018 compared to 2017 (46% US vs 33% China in 2018 with the US lead over China up 2% compared with 2017).

Among other countries, Germany (20%) remains in third place, followed by the UK (15%) in fourth place while India edges Japan as the fifth most attractive market in 2018.

For CEOs in specific countries, in the UK, with Brexit negotiations only recently reaching a significant milestone, business leaders’ drop in short-term confidence declined from 41% in 2017 to 34% in 2018. CEOs’ outlook improved in several key markets, including in Australia (up 4% to 46%) and China (up 4% to 40%), where the share of CEOs saying they are “very confident” in their own companies 12-month growth prospects rose, according to the PwC study.

“Even with high levels of global growth confidence, business leaders want and need safe harbors for investment to secure short-term growth,” comments Bob Moritz, Global Chairman, PwC. “Access to consumers, skills, finance and a supportive regulatory environment are reinforcing leading markets’ positions, for business leaders to achieve their short-term growth targets.”

Pharma industry CEOs

The top three most confident sectors for their own 12-month prospects this year are technology (48% of CEOs said they were “very confident”), business services (46%), and pharmaceutical and life sciences (46%), all exceeding the global “very confident” level of 42%.

Strategies for growth and talent

Strategies for growth remain largely unchanged on last year’s survey. CEOs will rely on organic growth (79%), cost reduction (62%), strategic alliances (49%), and mergers and acquisitions (42%). There was a small increase in interest in partnering with entrepreneurs and start-ups (33% vs 28% last year).

Confidence in short-term revenue growth is feeding into jobs growth, with 54% of CEOs planning to increase their headcount in 2018 (2017: 52%). Only 18% of CEOs expect to reduce their headcount. Healthcare (71%), technology (70%), business services (67%), communications (60%), and hospitality and leisure (59%) are among the sectors with the highest demand for new recruits, according to the PwC study. While only 18% of CEOs expect to reduce their headcount, CEOs estimate that four out of five (80%) of those jobs affected will have been impacted in some way by technology: 52% to some extent and 28% to a large extent.

On digital skills specifically, over a quarter (28%) of CEOs are “extremely concerned “about their availability within the country they are based, rising to 49% “extremely concerned” in South Africa, 51% in China, and 59% in Brazil. Overall, 22% of CEOs are extremely concerned about the availability of key digital skills in the workforce, 27% in their industry, and 23% at the leadership level. Investments in modern working environments, learning and development programs, and partnering with other providers are the top strategies to help them attract and develop digital talent.

While recent research by PwC showed that workers were optimistic about technology improving their job prospects, CEOs said that helping employees retrain and increasing transparency on how automation and artificial intelligence could impact jobs is becoming a more important issue for them. Two thirds of CEOs believe they have a responsibility to retrain employees whose roles are replaced by technology, according to the PwC study, with that sentiment the highest in the engineering and construction (73%), technology (71%), and communications (77%) sectors. Sixty-one percent of CEOs said that they build trust with their workforce by creating transparency, at least to some extent, on how automation and artificial intelligence impact their employees.

The digital and automation transition is particularly acute in the financial services sector. Almost a quarter (24%) of banking and capital markets and insurance CEOs plan workforce reductions, with 28% of banking and capital markets jobs likely to be lost to a large extent due to technology and automation, according to the study.

Concerns by CEOs

Despite the optimism in the global economy, CEOs expressed concern on a much broader range of business, social, and economic threats. CEOs said that they were “extremely concerned” about geopolitical uncertainty (40%), cyber threats (40%), terrorism (41%), availability of key skills (38%), and populism (35%). These threats outpace familiar concerns about business-growth prospects, such as exchange-rate volatility (29%) and changing consumer behavior (26%). Underlining the shift, extreme concern about terrorism doubled (2018: 41% vs 2017: 20%) and terrorism enters the top 10 threats to growth, according to the PwC study. The threat of over-regulation remains the top concern for CEOs (42% extremely concerned), and over a third (36%) remain concerned about an increasing tax burden.

Key skills availability is the top concern for CEOs in China (2018: 64% “extremely concerned” vs. 2017: 52%). In the US (63%) and the UK (39%), cyber threats has become the top concern for CEOs displacing over-regulation as the top concern. In Germany, cyber threats jumped from being the fifth concern in 2017 to third place (28%) in 2018, according to the PwC study.

CEOs’ concern about the threat of climate change and environmental damage to growth prospects doubled to 31% of CEOs expressing concern compared to 15% in 2017. In China, more than half (54%) of business leaders are “extremely concerned” about climate change and environmental damage as a threat to business growth, equal with their levels of concern about geopolitical uncertainty and protectionism, according to the study. Climate change and environmental damage is reported in the top five threats for businesses in Asia Pacific and Western Europe and recognized as a top five threat for the growth prospects of companies in the energy and utilities, engineering and construction, transport and logistics sectors.

Examining the key challenges for businesses, CEOs say that delivering results in shorter periods of time (60%) is the main challenge. However, following this, there is a significant shift with the majority reporting higher levels of pressure to hold individual leaders to account (59%), including for misconduct. Over a third report more pressure from employees and customers to take political and social stances (38%) in public. In the banking and capital market (65%), healthcare (65%) and technology sectors (59%), the profile of leadership accountability was higher than average as were expectations in the US (70%), Brazil (67%), and the UK (63%).