Economic Conditions Snapshot March 2014

Download Economic Conditions Snapshot March 2014

Post on 21-Oct-2014

557 views

Category:

Business

3 download

DESCRIPTION

 

TRANSCRIPT

Executives maintain a positive outlook for both domestic and global growth, though geopolitical tensions in Europe herald new risks for the global economy.

Concerns about geopolitical instability and its implications for global growth have surged, according to McKinseys latest survey on economic conditions.1 Seventy percent of all respondents cite geopolitical tensions as a risk to growth in the global economy over the next year, up from 27 percent in December, as the recent turmoil in Ukraine and Russia has left executives across Europe divided.

On average, executives remain optimistic about conditions in both their home countries and the global economy, though sluggish demand still tops their list of domestic concerns. Among non-eurozone respondents in Europe,2 however, economic expectations have taken a turn for the worse. They cite geopolitical issues most often as a risk to their countries domestic growth. Relative to their peers in the eurozone, they are much more negative about current conditions at home and in the world economyand more pessimistic about economic prospects in the months ahead.

1 The online survey was in the field

from March 3 to March 7, 2014, and garnered responses from 1,403 executives representing the full range of regions, industries, company sizes, functional specialties, and tenures. To adjust for differences in response rates, the data are weighted by the contribution of each respondents nation to global GDP. During the week the survey was in the field, world leaders

scrambled to respond to Russias posting of troops in Crimea, and the Crimean parliament voted to secede from the Ukraine and join Russia.

2 Bulgaria, Croatia, Czech Republic, Denmark, Latvia, Lithuania, Macedonia, Monaco, Norway, Poland, Romania, the Russian Federation, Scotland, Serbia and Montenegro, Sweden, Turkey, Ukraine, and the United Kingdom.

Economic Conditions Snapshot, March 2014

McKinsey Global Survey results

Jean-Franois Martin

2 Economic Conditions Snapshot, March 2014McKinsey Global Survey results

Renewed geopolitical risks

Given the degree of uncertainty in Ukraine after months of protests and political unrest, executives around the world agree that over the next 12 months, geopolitical instability will pose the biggest threat to global growth. In addition to the growing concern over geo- politics, executives also rank political conflicts and transitions higher than they did three

months ago (Exhibit 1). On other top risks, executives in emerging and developed economies are divided. Those in emerging markets, for example, are more concerned than developed-market executives about inflation and volatile exchange rates.

With respect to domestic risks, geopolitical instability is also a greater concernespecially in non-eurozone Europe, where respondents are four times likelier now than in December to cite it as a threat to growth. Overall, low consumer demand continues to top the list, as it has

Exhibit 1

Geopolitics surges as a likely threat to global growth.

Survey 2014Economic snapshot, March 2014Exhibit 1 of 6

Geopolitics surges as a likely threat to global growth.

% of respondents

1 Out of 12 risks that were presented as answer choices in the question.

Top 6 potential risks to global economic growth,1 next 12 months

Mar 2014,n = 1,403

Dec 2013,n = 1,499

Geopolitical instability 70 27

Low consumer demand 31 40

Domestic political conflicts 25 22

Increased economic volatility 25 31

New asset bubbles 21 29

Transitions of political leadership 16 10

3 Economic Conditions Snapshot, March 2014McKinsey Global Survey results

since June 2011. However, there are notable differences between executives in emerging and developed economies (Exhibit 2).

When asked why demand is low in their countries, executives are divided over the causes. Respondents in emerging markets are nearly nine times as likely as those in developed markets to cite high inflation, while much larger shares in developed markets

attribute low demand to deteriorating household finances and postponed consumption.

As in December, emerging-market executives are more worried about asset bubbles. They cite these more often as an overall risk to growth and are twice as likely as developed-market executives to say that over the next six months, asset bubbles will pose a significant threat to

growth at home.

Exhibit 2

Threats to domestic growth differ for developed and emerging markets.

Survey 2014Economic snapshot, March 2014Exhibit 2 of 6

Threats to domestic growth differ for developed and emerging markets.

% of respondents, by office location

1 Out of 12 risks that were presented as answer choices in the question.2Developed Asia, Europe, and North America.3China, developing markets (ie, markets in Asia, Africa, and the Middle East), India, and Latin America.

Biggest differences in ranking of risks to domestic economic growth,1 next 12 months

Percentage-point difference

Inflation14

28

18

12

11

10

10

42

Low consumer demand45

27

1729

Transitions of political leadership

1122

Increased volatility of exchange rates

2717

Geopolitical instability

3424

Insufficient government-policy support

Developed economies,2 n = 1,037

Emerging economies,3 n = 365

4 Economic Conditions Snapshot, March 2014McKinsey Global Survey results

Country-level conditions diverge

On average, executives are as positive about economic conditions at home as they were in December. Forty-three percent say current conditions are better now than six months agoclose to the 49 percent of executives who, six months ago, expected conditions would improve by nowand 43 percent expect conditions will improve over the next six months.

Across regions, respondents in North America and developed Asia3 remain the most upbeat (Exhibit 3). Yet those in Asia are much likelier now than in December to say conditions have worsened, and they are less likely than most others to expect improvements in the coming months.

Exhibit 3

At home, views on current and future conditions are mixed.

Survey 2014Economic snapshot, March 2014Exhibit 3 of 6

At home, views on current and future conditions are mixed.

% of respondents,1 by office location

1 Figures may not sum to 100%, because of rounding.2Includes China and Latin America.

Economic conditions in respondents countries

Current conditions, compared with 6 months ago

Expected conditions, in 6 months

Substantially better

Moderately better

The same Moderately worse

Substantially worse

1

1

3

North America,n = 404

554 30 9 474 39 8

45 30 24AsiaPacific,n = 161

36 41 21

26 33 29 8Developing markets,2

n = 25134 36 23 5

346 34 20Europe,n = 472

6 41 35 16 5

1

3

3

1

1

India,n = 114

28 41 24 6 5413 23 9

1

2

3 Australia, Hong Kong, Japan, New Zealand, the Philippines, Singapore, South Korea, and Taiwan.

5 Economic Conditions Snapshot, March 2014McKinsey Global Survey results

Within Europe, views are split. Looking at current conditions, non-eurozone executives are less likely than their eurozone peers (and less likely than they were in December) to report improvement (Exhibit 4). The outlook, too, is gloomier outside the eurozone. Half of executives in the eurozone expect conditions at home will be better in six months; just 37 percent of non-eurozone executives say the same.

Global optimism holds steady

At the global level, executives are still optimistic. More than half of all respondents say conditions in the global economy have improved in the past six months and that they will be better still in six months time.

Exhibit 4

In Europe, executives are divided along eurozone lines.

Survey 2014Economic snapshot, March 2014Exhibit 4 of 6

In Europe, executives are divided along eurozone lines.

% of respondents1

1 Figures may not sum to 100%, because of rounding.2In March 2014, n = 245; in December 2013, n = 283.3In March 2014, n = 227; in December 2013, n = 245.

Current conditions in respondents countries, compared with 6 months ago

Mar 2014 Dec 2013

Substantially better

Moderately better

The same Moderately worse

Substantially worse

Eurozone2 376 34 21

296 34 20 11

38 33 20 7

Non-eurozone3 464 29 19

2

3 2

6 Economic Conditions Snapshot, March 2014McKinsey Global Survey results

Non-eurozone executives, though, are much less sanguine than in December. Across regions, they are now the least bullish about current global conditions (Exhibit 5). They have also become less likely to believe conditions will improve: compared with 60 percent in the eurozone, 49 percent expect improvement, which is down from 61 percent three months ago.

Exhibit 5

Non-eurozone executives are glum on global conditions.

Survey 2014Economic snapshot, March 2014Exhibit 5 of 6

Non-eurozone executives are glum on global conditions.

% of respondents,1 by office location

1 Figures may not sum to 100%, because of rounding.2Includes China and Latin America.

Economic conditions in the global economy

Current conditions, compared with 6 months ago

Expected conditions, in 6 months

Substantially better

Moderately better

The same Moderately worse

Substantially worse

1

1

North America,n = 404

55 22 19 54 30 11

53 32 12

AsiaPacific,n = 161

58 30 9

51 34 11

1

Developing markets,2

n = 251

62 26 46

52 35 10

Europe (eurozone),n = 245

45 38 14

23

3 3

33

1

1

1

1

2

India,n = 114

49 29 16 5 42 38 19

1

44 34 17Europe (non-eurozone),n = 227

4 48 31 15 5

4

7 Economic Conditions Snapshot, March 2014McKinsey Global Survey results

Looking further out, executives are most likely to expect a global economic environment of renewed overall growththat over the next decade, developed economies will spur innovations, and emerging economies will rely more and more on domestic-led growth. After that, executives say the most likely scenario is emerging-market resilience to crises in advanced economies.

Copyright 2014 McKinsey & Company. All rights reserved.