In every region across the world, CEOs predict slower economic growth with pessimism at a record high in Australia
Less than a third of Australian CEOs are confident in their companies’ own revenue growth prospects for 2020
Climate change and environmental damage rate as a top ten growth threat for the first time
China CEOs nominate Australia as their top market for growth for the second year running
Australian CEOs are showing record levels of pessimism in the global economy as we enter a new decade, with 59 percent predicting a decline in global GDP in 2020, up from just 7 percent two years ago.
PwC’s 23rd Annual Global CEO Survey which launched today at the World Economic Forum in Davos, Switzerland shows the highest level of pessimism in Australia since we started asking this question in 2012.
The survey of almost 1,600 CEOs from 83 countries across the world, including 117 respondents from Australia, also shows a collapse in confidence of Australian CEOs when looking at their organisation’s revenue growth, with climate change and environmental damage rating as a top ten growth threat for the first time.
PwC Australia CEO Luke Sayers said “The big increase in pessimism is not surprising given the ongoing uncertainty over trade tensions, geopolitical issues and the lack of agreement on how to deal with climate change. Australian CEOs are not unique when it comes to economic pessimism for 2020. But while their global counterparts are responding with proactive growth strategies, many local CEOs are focusing their response on cost cutting and operational efficiency initiatives.
“Unsurprisingly, climate change now registers as a top threat. With the devastating bushfires continuing, Australian CEOs are likely to be even more concerned about this than they were when our survey was conducted in September and October last year. Nevertheless, it’s worrying to see half of local CEOs are yet to assess potential infrastructure damage from future climate change events. These last few months clearly show the vital importance of being prepared.”
Climate change concerns on the rise
Nearly two thirds of Australian CEOs now see climate change as a major threat, with concerns increasing year on year over a 10 year period. This survey was in the field in September and October last year, before the peak of the bushfire crisis, so we would expect the threat number to be even higher if we did the survey today.
There is also limited confidence amongst Australian CEOs that we have the right solutions in place to mitigate the climate change threat, with only 12 percent of Australian CEOs believing business and government collaboration is effectively mitigating climate change risks, compared to a third of CEOs globally. There has only been a 5 percentage point movement in this figure over the last five years.
Australian CEOs are also trailing their global counterparts in their views of climate change driven product and service opportunities, with only 17 percent strongly agreeing there are opportunities for their organisation, down from 20 percent in 2010. This is despite one in four Australian CEOs believing their organisation’s response to climate change will provide a reputational advantage among key stakeholders.
In contrast, there is a growing global consensus on climate change driven opportunities, particularly among CEOs in China, India, US, Brazil, Italy, Japan and Germany. China has seen the most dramatic shift in views over the last ten years in particular, with 47 percent strongly agreeing there are climate change driven opportunities for their organisation, up from only 2 percent in 2010.
PwC Australia Energy Utilities & Resources Leader, Mark Coughlin said: “There’s no doubt Australia’s extreme and devastating fire season has brought to the fore the immediate challenge of setting a clear and positive direction for Australia’s energy and climate policies and business and government collaboration is the linchpin.
“PwC recently undertook modelling of a number of scenarios for Australia’s energy future and found a power generation mix dominated by renewables by 2040 and a more connected national grid can deliver affordable and reliable electricity, as well as drive an increase in Australia’s economic welfare. Rather than being a drag on the economy as many still think, it would add more than $13 billion to Australia’s GDP (in net present value terms) over the next 20 years,
“Alternatively, replacing retired coal-fuelled thermal plants with new High-Efficiency Low Emissions coal plants would result in a marginally higher energy system cost but deliver comparatively poorer economic and emissions outcomes.
“A path dominated by renewables will give us the best chance of solving our energy trilemma within a generation. But this path is only available to us for a short window. Our modelling shows we must act now to build new and replacement energy infrastructure as coal plants retire and to manage increasing power network congestion.”
“A single and comprehensive national plan for our energy future must be one of the key priorities for government and business in 2020. Ongoing delays are no longer acceptable,” Mr Coughlin said.
CEO confidence in own revenue growth declines
Australian CEOs are also not so positive about their own companies’ prospects for the year ahead, with only 31 percent of local CEOs believing they will grow revenue in 2020, rising slightly to 38 percent over the next three years.
A large majority (77 percent) of Australian CEOs plan to turn inward to improve on operational efficiencies. One in four Australian CEOs will seek to decrease headcount in the search for growth, three times the number of global CEOs, while only 14 percent plan to collaborate with entrepreneurs or startups, down from 22 percent in 2019.
While confidence levels are generally down across the world, there is a wide variation from country to country, with China and India showing the highest levels of confidence they will grow revenues in 2020 among major economies, at 45 percent and 40 percent respectively. Japan has the least optimistic CEOs with only 11 percent very confident of growing revenues in 2020.
Mr Sayers said: “These are worrying insights, because the economy needs businesses to be investing, innovating and seeking out new markets for growth to keep our economy strong. Without investment and innovation, productivity won’t improve, wages will remain flat and growth will remain stagnant.”
China turns from US to Australia for growth
While the US and China have signed an agreement to ease trade tensions in the short-term, ongoing trade conflicts and political tensions with the US have seen China’s CEOs nominate Australia as their top market for growth for the second year running.
After beating the US in 2019, almost half of the China CEOs surveyed are now looking to Australia for growth, increasing more than two-fold from 21 percent in 2019.
Australia’s gain has been the US’s loss, with just 11 percent of China CEOs selecting the US as a top growth market, a dramatic drop from 59 percent two years ago when trade tensions first emerged between the two countries.
PwC Australia Asia Practice Leader, Andrew Parker said: “Our economic ties with China run deep. Two-way trade between our countries accounts for almost a quarter of our trade and is more than 2.5 times Australia’s two-way trade with our next largest partners, Japan and the US.
“Australia has not had a trade relationship of this significance since the 1950s, when the United Kingdom was our major trading partner. While the relationship matters enormously to us, managing it is presenting real challenges and that is something Australians are going to have to get used to.
“It is interesting to see a significant increase in the number of China CEOs looking to Australia as a top market for growth. We have not seen this sentiment reflected in investment activity in the last two years. Slower growth in the Chinese economy, tighter controls on credit and the movement of capital out of China as well as a more hostile stance towards Chinese investment in many countries has seen China outbound investment fall significantly over the last three years.
“PwC analysis shows that China outbound M&A in the first six months of 2019 at US$ 28.6 billion was nearly half that of the previous 6 months and barely one-fifth of the heights reached in the first half of 2016.
“Still, Australia remains a relatively attractive country to invest in, in the eyes of many foreign investors, and China CEOs are saying they share that view.
“Our survey points to an opportunity for greater FDI from China into Australia, but government and business really need to come to a consensus on what that investment can look like and we need to articulate a consistent message to the Australian people about how our national interests are protected and advanced by that investment,” Mr Parker said.
Overall the US just retains its lead as the top market CEOs look to for growth over the next 12 months at 30 percent, one percentage point ahead of China at 29 percent. The other countries making the top five for growth are unchanged from last year – Germany (13 percent), India (9 percent) and the UK (9 percent). A strong result for the UK given the uncertainty created by Brexit. Australia is just outside the top five boosted by its increased attractiveness for China CEOs.
Cyber security and policing named top growth threat
Cyber security risks continue to be seen as the greatest threat to business growth in 2020, with 85 percent of Australian CEOs identifying it as one of the top three threats for the coming year, compared to the global average of 73 percent. Over the past five years, Australian CEOs have been consistently more concerned about cyber security undermining growth than their global peers.
The majority (84 percent) of local CEOs identify the increasing complexity of cyber security as the most influential factor shaping their cyber security strategy, with growing public concern over data privacy also a strong influencing factor.
PwC Australia Cyber Leader, Paul O'Rourke said: “It’s no surprise that cyber security risks are the top threat identified by Australian CEOs given the increasing sophistication, complexity and frequency of cyber attacks we’re seeing.
“What is surprising is the lack of effective changes in policies and regulations aimed at increasing government and business collaboration. Only a third of local CEOs believe that they are seeing effective changes in policies and regulations in areas such as collaboration to drive increased harmonisation of cyber security strategies and cooperation among governments and businesses to manage cross-border data flows.
“These findings are particularly concerning, given one in two local CEOs also identified vulnerabilities in supply chains and business partners as a key factor impacting their cyber security strategies. Improvements in cybersecurity won’t come about unless we dramatically improve business and government collaboration on risk management strategies,” Mr O’Rourke said.
Australian CEOs, like their global counterparts, are also predicting significant regulatory changes in the technology sector. Nearly one in four Australian CEOs believe that governments will introduce new legislation to regulate the content on both the internet and social media and to break up dominant tech companies. Around half of local CEOs also predict that governments will increasingly compel the private sector to financially compensate individuals for the personal data that they collect.
However, CEOs here and around the world are in two minds as to whether governments are striking the right balance in designing privacy regulation between increasing consumer trust and maintaining business competitiveness.
Still no real progress on upskilling challenge
While the shortage of key skills remains a top threat to growth for CEOs in Australia and around the world and they agree that retraining/upskilling is the best way to close the skills gap, the survey finds they are not making much headway in tackling the problem.
Only 13 percent of Australian CEOs and 18 percent of CEOs globally say they have made “significant progress” in establishing an upskilling program. This sentiment is echoed by workers. In a separate survey by PwC of 22,000 workers, 60 percent of Australian workers are worried that automation is putting jobs at risk yet only 23 percent are upskilling within their workplace.
PwC Australia National Skills Lead, Sara Caplan said: “Business leaders must collaborate with educators, government and civil society to ensure that people around the world stay productively engaged in meaningful and rewarding work. Leaders have a key role to play by providing a trusted way forward for their workers by providing learning and development opportunities in the workplace.”
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