CEOs less optimistic about global economy in 2015

Fewer company chief executives believe global growth will improve during the next 12 months, yet their confidence in their ability to achieve revenue growth in their own companies remains stable, according to a survey of more than 1,300 CEO interviewed by PwC.  

About 37 percent of CEOs said they think global economic growth will improve in 2015, down from 44 percent last year. The share of executives expecting a decline in economic growth, meanwhile, jumped from 7 percent to 17 percent.  

Regionally, the results varied widely, with CEOs in Asia Pacific and in emerging markets much more optimistic about the global economy than their counterparts in Central and Eastern Europe and developed economies like the United States and Germany.  

However, chief executives overall are more positive about the growth prospects of their own firms, with 39 percent worldwide stating that they are very confident their company’s revenues will grow in the next 12 months. Last year this confidence figure was 36 percent. 

Again, CEOs in the Asia Pacific region, led by India, are the most upbeat. Confidence levels also improved in the U.S. European chief executives are least certain about their firms’ prospects. 

“The world is facing significant challenges: economically, politically and socially. CEOs overall remain cautious in their near-term outlook for the worldwide economy, as well as for growth prospects for their own companies,” said Dennis M. Nally, chairman of PricewaterhouseCoopers International. 

“While some mature markets like the U.S. appear to be rebounding, others like the Eurozone continue to struggle. And while some emerging economies continue to expand rapidly, others are slowing. Finding the right strategic balance to sustain growth in this changing marketplace remains a challenge,” he noted. 

The decline in oil prices and other commodities has dented the confidence in certain resource-rich countries. Geopolitical tension in Ukraine and the Middle East also impacted on the attitudes of senior executives. Russia, meanwhile, has been hit both by falling oil prices and sanctions. 

“CEO confidence is down notably in oil-producing nations around the world as a result of plummeting crude oil prices,” Nally said. “Russia CEOs, for example, were the most confident in last year’s survey, but are the least confident this year. Confidence also slipped among CEOs in the Middle East, Venezuela and Nigeria.” 

The U.S. is the most important growth market for most executives in the next year, placing it ahead of China for the first time in five years. 

Overall, 38 percent of CEOs say the U.S. is among their top-three overseas growth markets, compared with 34 percent for China, 19 percent for Germany, 11 percent for the U.K. and 10 percent for Brazil. 

 

Business strategies  

Executives anticipate that the predominant business strategy to gain a competitive edge next year will be cost cutting (71 percent), followed by strategic alliances and joint ventures (51 percent). 

The climate for domestic mergers and acquisitions has also improved, with 29 percent of executives (up from 23 percent) contemplating deals in the next 12 months. 

The main drivers for new alliances are access to new customers, emerging technologies, new markets and innovation. 

In contrast, 31 percent of executives consider outsourcing as their main business strategy next year. 

One third of respondents said their company has recently entered or considered entering one or more new industries in the last three years, and more than half expect their firms will compete in new sectors in the next three years. 

 

Top concerns  

CEOs’ main concerns have increased across the board, with the exception of concerns about energy costs. 

Over-regulation remains the top concern for CEOs worldwide, especially in Argentina, Venezuela, the U.S., Germany, the U.K. and China. Other main worries include fiscal deficits and debt burdens, geopolitical tensions and higher taxes. 

Two-thirds of CEOs said government’s top priority should be to maintain competitive and efficient tax systems, but only 20 percent believe their country is successful in doing so. 

The availability of key skills is another key worry of executives. Only 21 percent stated that sufficient skilled labor is available in their home country. Staffing expectations remained the same as last year, with half of CEOs around the world saying they will increase their headcount over the next 12 months, while 21 percent expect a decrease. 

Cyber risks and the security of sensitive data were named as growing threats compared to last year. In addition, social instability, shifting consumer patterns and the speed of technological change also feature high on the list of management concerns.  

Digital technology has disrupted the way almost all companies do business. Mobile technologies and data mining and analysis have changed service delivery and business processes. With cloud computing and the business use of social media, new risks have emerged. But operating efficiency and customer experience have also improved as a result of digitalization, executives stated. 

“CEOs know they must be adaptable to disruptive changes in technology and in their markets,” Nally said.  

“They need to put technology at the core of their business to create value for customers. Finding new ways of thinking and working in this new competitive landscape is critical to success.” 

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Dennis M. Nally

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