Widening gaps and a positivity lapse

There’s a ‘positivity lapse’ in 2019 according to Australian and global CEOs, in contrast to the record CEO optimism leap of 2018. This year, 32% of Australian CEOs project a decline in global growth prospects, up from a mere 7% projecting a decline last year. This mirrors the sentiment of global CEOs, with 29% projecting a decline in global growth prospects, up from just 5% in 2018.

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Australian CEOs also reported a dip in confidence in their own organisation’s revenue prospects over the short (12 months) and medium (three years) terms.

To be clear, there are more CEOs who think global economic growth will ‘improve’ than those who say it will ‘decline’. Overall though, CEOs are more polarised in their views on global economic growth in 2019 compared to last year.

Populism and Protectionism

This rise in relative pessimism is not that surprising. Most major economic models have adjusted their 2019 forecasts downward. International trade tensions, political upset and uncertainty, and stricter monetary and fiscal policy, all play out differently, but with the same general result: a more cautious outlook on global economic growth.

Amid the wave of populist and protectionist sentiment sweeping other nations, Australian CEOs have turned their attention inward and are focused on doing business at home and in the markets they already operate in, rather than looking for ways to adapt to new barriers between both trade and labour markets.

While CEOs await greater clarity on government actions and market conditions, their top concerns are what dominate the headlines: Australian CEOs are worried about trade conflicts (61%), protectionism (62%) and populism (63%) as threats to growth.

The revenue and expansion opportunities Australian CEOs identify are also more internally oriented compared to last year. This means CEOs are looking inwards for growth by relying on operational efficiencies, organic activity and launching a new product or service.

Trading places

With trade concerns linked to protectionist and populism policies around the globe, CEOs in many countries are changing operating models and growth strategies.

But Australian CEOs are not. Of the nearly quarter (23%) of Australian CEOs extremely concerned about trade conflicts as a threat to growth, not a single one plans to adjust their supply chain and sourcing strategy. In addition, 63% say they are not changing their operating model and growth strategy.

In contrast, two-thirds of CEOs globally have made changes to their operating model and growth strategies, and a further one in four are shifting their growth strategies to alternative markets.

While Australia might not be in the firing line, that doesn’t mean CEOs should be sitting on the sidelines and not thinking about how we could be impacted, either positively or negatively.

In this dynamic, fast-paced environment, Australian CEOs have an opportunity to secure more advantageous supply-chain arrangements, and they should also be looking at opportunities to invest in markets behind the trade barriers.  

At the same time, it’s essential we support our government in maintaining and improving trade rules that underpin the international multilateral trading system because there are rarely any real winners in a trade war.

Australia usurps US as China’s top market for growth

Trade tensions between China and the US have had a significant impact on how Chinese CEOs are thinking about offshore growth opportunities over the next 12 months. They now identify Australia as the top market for growth outside their home market. That’s a major change from 2018 when Australia did not even make the top 10, largely because resources came off the boil and technology took centre stage.

In contrast, only 17% of Chinese CEOs now name the US as a market for growth, down from 59% in 2018.

Australia comes in at 10th place overall as a market for global CEOs growth prospects over the next 12 months, with 5% of global CEOs naming Australia in their top three most attractive markets.  

Australia’s economic performance is second to none, and it has been for 28 years. With a relatively long history of interest from Chinese companies, Australia is seen as a stable, predictable and developed market.  

Some sectors and industries will present challenges for foreign companies in terms of FIRB scrutiny. However, Australia is not a hostile environment for Chinese investors outside of sensitive areas.  Governments could view this as an opportunity to remind Chinese companies that Australia remains open for business.

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Luke Sayers AM

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