Executives view the global economy as stable but recognize an increase in downside risks.
The majority of executives surveyed see the global economy as stable or positive — even as actual economic results across the world have been variable and sometimes contradictory. Companies are challenged by the ongoing uncertainty over where faster growth will come from.
Add to this frustration the impact of events, such as the United Kingdom’s decision to leave the European Union (Brexit), the heightened market volatility caused by US interest rate uncertainty and upcoming elections in several countries.
Our survey finds that these factors have precipitated a slight upturn in the number of executives who see the global economy as declining. The perceived fragility of the current market means overall macroeconomic sentiment is susceptible to any major systemic shock.
This environment creates a backdrop where strategically focused, growth-oriented inorganic moves are necessary to grow revenue and earnings, including M&A, JVs and alliances. Companies are using deals and alliances to improve their competitive positioning, extend product offerings or move into new markets or industries.
Q: What is your perspective on the state of the economy today at the global level?
Responses upbeat on capital market outlook, but credit markets may tighten
Executives are moderately upbeat about the overall outlook for capital markets, despite 2016’s sporadic periods of market turmoil. A majority of executives see conditions over the next 12 months as either stable or positive.
In terms of corporate results, the past year has been marked by a downturn in company earnings. Executives’ slightly more positive outlook suggests this trend may be near an end. If an upturn is in the offing, it is unlikely to manifest across all sectors or geographies. Downward pressures persist in several industries and regions, particularly resource-based sectors and countries.
The most notable response shows a declining sentiment in outlook for credit availability. This view may be influenced by concerns over tapering of quantitative easing policies, especially at the central banks in Europe and Japan. Such a shift may impact on credit markets, especially for lower-rated segments of the economy and emerging markets.
Q: Please indicate your level of confidence in the following at the global level
Political instability is joining market uncertainty as a top challenge to business strategies
Having experienced almost a decade of macroeconomic uncertainty, executives have become accustomed to ambiguity about global economic growth, highly volatile capital markets and confusion about the effects of monetary policy on currencies. These heightenedrisks remain ever present on the business landscape.
However, in 2016, political uncertainty — both international and domestic — has been elevated as a risk to economic growth.