CEOs gloomy on global economy

25 January 2012

Uncertainty dampens global CEO outlook for 2012 but confidence in company revenue growth remains ahead of 2009. Australia rated amongst the top 10 countries for overseas growth

Nearly half (48%) of the 1258 CEOs polled worldwide believe the global economy will decline even further in the next 12 months, according to PwC's 15th Annual Global CEO Survey. Just 15% said the global economy will improve during 2012.

However, nearly three times as many CEOs are confident in their own companies' growth prospects for the next 12 months than in the outlook for the global economy, suggesting CEOs believe they have learned how to manage through difficult and volatile economic times.

Forty per cent of CEOs said they are 'very confident' of revenue growth for their companies in the next 12 months, down from the 48% last year - though still up from the 31% who were 'very confident' in 2010.

In addition more than half of CEOs worldwide expect to increase headcount in the next 12 months, although the picture changes from sector to sector with hiring much more likely in entertainment and media than elsewhere.

Australia was rated by CEOs as one of the top ten countries that was most important for their companies' overall growth prospects. Other top 10 countries for growth prospects included China, US, Brazil, India and Germany.

"CEOs from around the world consider Australia as an important and strategic market for business growth. Increasingly we are being seen as a place for long-term and diverse business opportunities and not just as a mine, a farm or a beach," said PwC Australia CEO Mark Johnson.

Unsurprisingly, the biggest decline in confidence about revenue growth this year was in Western Europe, where just a quarter of CEOs said they were very confident of revenue growth, down sharply from nearly 40% last year.

Interestingly, short term confidence also fell among CEOs in Asia Pacific, dropping to 42% from 54% last year. China saw the biggest decline in confidence in the Asia Pacific region, with only 51% of CEOs feeling 'very confident', compared to 72% last year.

Sentiment amongst Australian CEOs was also down, with only 44% feeling 'very confident' of revenue growth over the next 12 months, compared to 50% last year.

There was also a marked decline in confidence in India with only 55% of Indian CEOs very confident of revenue growth down from 88% last year. In the US, 41% of CEOs said they were very confident of short term growth, down from 45% last year.

Mr Johnson said the results of this year's survey show that the debt crisis in the Eurozone is dampening confidence in business growth all around the world.

"Some of the optimism that had been building tentatively since the GFC is now starting to erode, as CEOs appear to be disappointed by the rate of global economic recovery.

"Confidence among even the fast growing economies in Asia and Latin America has fallen, indicating that the global economy is not as 'decoupled' as some have suggested," Mr Johnson said.

The PwC Global CEO survey, based on interviews with 1258 CEOs, was released at the World Economic Forum annual meeting in Davos.

Looking at what is worrying CEOs, 80% of CEOs had some concern about uncertain economic growth, 64% about instability in the capital markets, 66% about government responses to fiscal deficits and debt burden, 58% about exchange rate volatility and 56% about over regulation. And while 56% of CEOs said their company had been financially affected by the sovereign debt crisis in Europe, 45% said they had taken steps to respond.

"Despite the largely pessimistic outlook, many CEOs are more confident in their ability to grow their businesses despite the uncertain and gloomy market conditions, as evidenced by the fact that the majority of CEOs plan to increase headcount in 2012.

"It appears that CEOs are becoming accustomed to operating in a volatile global economy, and they are getting much better at running their businesses more efficiently. Australia's continued focus on productivity improvements across industry will be critical to business resilience," said Mr Johnson.

Growth opportunities

According to the CEOs, the best strategic growth opportunities in the next 12 months will come from increasing share in existing markets and from developing new products and services, both cited by nearly one third of respondents. New market penetration, 18% and joint ventures and alliances, 10%, trailed as growth strategies. The number of CEOs planning M&A activity remains relatively low with prospects for a recovery in the deals market still looking some way off.

The emerging markets remain a vital growth opportunity for CEOs. Overall, 59% agreed that growing markets were more important to their company's future than more developed economies. Almost half of CEOs from developed nations said that emerging markets were most important to their future. Top growth targets were the BRIC countries (Brazil, Russia, India and China), joined by the U.S. and Germany. In all, when asked to select the top three targets for growth, more than 60 different countries were named by CEOs.

Seventy percent of CEOs plan to make changes to their strategy in the next 12 months, driven primarily by customer demand and economic conditions. Cost reduction remains a key, though declining, focus for CEOs; 76% reported they cut costs in the last 12 months, down from 84% the previous year. And 66% of CEOs said they would cut costs in the next 12 months.

The Talent Challenge

Finding and keeping the right talent remains a top concern for CEOs. Only 30% said they are 'very confident' they will have access to the talent needed to execute their company's strategy, and 43% believe that it has become more difficult to hire workers in their industry. Recruiting and retaining high potential middle managers is the biggest talent challenge, CEOs said, followed by hiring skilled production employees and younger workers.

This challenge cuts across all industries, even those with different talent needs, such as industrial manufacturing and pharmaceuticals.

Despite the sluggish economy, businesses are gearing up to hire. More than half of CEOs said they had increased headcount in their organisation in the past 12 months and about the same percentage expect hiring momentum to continue. More CEOs in Middle East/Africa followed by North America reported hiring increases in the past 12 months, while CEOs in Asia said they are most likely to add jobs in the coming year. Just 18% of CEOs said they expected to cut their workforce in the coming year, down from 23% who said they made cuts in the past 12 months.

A potential shortfall of talent was also cited by 53% of CEOs as a threat to growth. The availability of skills was seen as a top concern across all geographic regions outside of Europe. Other frequently cited threats to growth included potential tax increases, also cited by 55%, changing consumer spending patterns and behaviours, 50%; energy costs, 46%; inability to finance growth, 40%; new market entrants, 38%; supply chain security, 34%; and inadequacy of basic infrastructure, 30%.

Three quarters of CEOs said they expect to make changes in their strategies for managing talent during the next 12 months making managing talent the top target for change for the second year in a row.

Nearly 70% of CEOs said they wished they could spend more of their own time developing the leadership and talent pipeline in their company, placing it just behind meeting with customers as a priority. Other CEO time priorities included improving efficiency in the organisation, 62%; and setting strategy and managing risk, 54%.

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