EY Capital Confidence Barometer April 2014 - October 2014
Economic outlook — despite shocks, recovery is resilient
With executives now confident of a real and sustained economic recovery, global megatrends may have a more transformative impact on their growth strategies.
Our respondents’ outlook for the economy is more resilient than at any time in the past few years. Economic pressures and geopolitical shocks — such as slowing emerging market growth, the tapering of quantitative easing in the US, and unrest in the Middle East and Eastern Europe — temper this confidence to some extent. But the persistence of such shocks means these risks are being factored into long-term business plans.
The relative consistency in our respondents’ overall confidence numbers — down slightly from 6 months ago, but still up solidly from 12 months ago — points to an improving outlook.
Executives remain confident in global economy: Executives’ confidence in the economy remains up considerably from a year ago, buoyed by strengthening business fundamentals. The percentage who see the economy declining fell to 9% — the lowest level since the Barometer launched five years ago.
Global megatrends converging to shape business and acquisition strategies: When asked which trend could have the greatest impact over the next 12 months, more than half of executives pointed to the trend commonly called “the future of work.” This includes skills shortages, competition for talent and changing employer-employee obligations, among other issues.
This is expected to have the largest impact on both business and acquisition strategies. Large proportions also pointed to digital transformation and global rebalancing, all of which may also be contributing to a shortage of skilled talent.
Mature economies remain most confident in global economy: The most developed economies continue to express the greatest confidence in the strength of the global economy, consistent with our last Barometer. Among the BRICs, China and Russia are most positive on global economic prospects. And confidence in the US ranks slightly above average.
“Future of work” megatrend likely affecting job creation: Job creation expectations have decreased significantly across the majority of sectors. Employment continues to lag behind the global economic upturn, which may reflect longer-term structural changes in the workforce. Digital transformation is making many jobs obsolete, while at the same time creating new ones. Additionally, spare capacity may be contributing to the slowdown in job creation.
Political instability and slowing growth in emerging markets are key economic risks: While corporate leaders now factor some global risk into their business, specific macro events can affect near-term confidence. Looking just at the next 6 to 12 months, executives say the greatest risks to their businesses center around emerging markets, fueled by both political instability and slowing growth.
Confidence seen across key financial indicators: Strong evidence that the recovery is real can be found among our respondents’ perception of various financial indicators. They are up in all categories, many significantly, showing increasing confidence in the global outlook. Confidence in corporate earnings, in particular, is at an all-time high in our Barometer.