Dean Simone Leader, Risk Assurance Practice PWC

The global economic outlook is certainly enough to test even the strongest enterprises. The eurozone is still mired in recession and the US economy is forecast to expand by just 2.2% this year.[1] The situation in some of the growth markets is also getting harder, as the slowdown in the BRIC economies demonstrates.

While market conditions in many countries are still very difficult, CEOs are more positive about the prognosis than they were last year: 52% think the global economy will stay the same for the next 12 months and only 28% believe it will shrink. In 2012, by contrast, 48% were convinced the global economy would contract.

But economic plateaux aren’t exactly grounds for cheer. That’s why short term confidence about the prospects for revenue growth has continued falling (see Figure 1). CEOs in Western Europe are especially nervous. Only 22% feel very confident they can increase their company’s revenues in the coming 12 months, compared with 53% of CEOs in the Middle East and Latin America.

Note: global figures in brackets

Growth prospects

• At 81%, the number of US CEOs somewhat or very confident of growth in the next 12 months exactly matches the global average. At 30% (36%) slightly fewer were very confident.
• In the longer term, 93% (90%) were somewhat or very confident of growth over the next three years and 47% (46%) very confident.

Global economy

• On the prospects for the global economy over the next 12 months, 31% (28%) anticipate a decline, 15% (18%) believe it will improve, and 53% (52%) that it will stay the same.

Growth opportunities

• 41% (32%) of US CEOs see opportunities in the next 12 months coming from organic growth  in the existing domestic market, with 22% (17%) from new M&A/joint ventures/strategic alliances, and 17% (25%) via new products or services.
• When asked to name the countries most important to them for their growth in the next 12 months, 41% of US CEOs named China, 21% Germany, 21% Brazil, and 20% Canada.

Investment priorities

• On investment priorities, 63% (51%) cited growing their customer base, 44% (49%) improving operational effectiveness, 40% (33%) new M&A/joint ventures/strategic alliances,  and 35% (27%) filling talent gaps.

Threats

• The top four potential economic and policy threats highlighted by US CEOs: a massive 93% (71%) government response to fiscal deficit and debt burden, 90% (81%) uncertain/volatile economic growth, 77% (69%) over-regulation, and 62% (61%) the lack of stability in capital markets.
• Of business threats, 73% (62%) cited the increasing tax burden, 54% (58%) the availability of key skills, 43% (49%) the shift in consumer spending/behaviours, 43% (42%) the speed of technological change, and 41% (52%) energy and raw material costs.
• 16% (16%) of US CEOs see a break-up of the eurozone as likely, with 47% (45%) rating it as unlikely.
• On the chances of China’s growth rate dipping below 7.5%, 19% (19%) see it as unlikely, 50% (45%) as likely and 31% (33%) are not sure.
• They are split on the chances of a recession in their own country, with 35% (32% deeming it likely, 26% (29%) unlikely and 39% (38%) not sure
• Only 6% (13%) believe a major health crisis – such as a viral pandemic – is likely, with 63% (51%) thinking it unlikely
• And 31% (20%) rate cyber attacks or major internet disruption as likely, with 32% (44%) thinking it unlikely.

Need to change

• 84% (82%) of US CEOs anticipate making changes in the next 12 months related to customer growth/retention/loyalty strategies
• 74% (77%) see the need to change in relation to strategies for managing talent
• 74% (74%) see the need for changes in their technology investments

Restructuring

• 81% (77%) of US CEOs have implemented cost-cutting measures in the past 12 months, and 71% (70%) expect to do the same in the coming year
• 42% (36%) have entered into a new strategic alliance or joint venture, and 57% (47%) expect to do so in the coming year
• 37% (31%) have outsourced a business process or function, and 29% (31%) plan to do so in the coming year

M&A

• US CEOs’ target regions for M&A/joint venture/strategic alliances include 48% (30%) for North America, 43% (30%) for Western Europe, 28% (25%) for Latin America, and 26% (22%) for East Asia.

Headcount

• 53% (48%) of US CEOs increased headcount last year, with 24% (25%) cutting their workforce
  • In the coming year 46% (45%) expect to boost headcount, with 23% (23%) saying they are likely to shed jobs.

Engagement

• When asked with whom they are seeking to strengthen their engagement programmes, US CEOs said customers and clients 90% (89%), users of social media 82% (78%), employees (including trade unions/work councils) 80% (77%), and supply chain partners 76% (78%).

Government

• 70% (60%) of US CEOs thought a priority of government should be to improve the country’s infrastructure.
• 68% (57%) thought it should be to create and foster a skilled workforce
• 68% (63%) thought it should be to ensure financial sector stability.

[1] PwC, ‘Global Economy Watch’ (December 2012).