Strong corporate earnings underpin positive outlook for capital markets according to our latest mergers and acquisitions report.

Global growth desynchronizes, but still running at an elevated level. Amid rising tensions over international trade, the broad global expansion that began two years ago has leveled off and become less balanced. But executives remain confident that global growth in the next 12 months will remain solid.

Economic activity continues to accelerate in the United States, driven in large part by recent tax cuts. In contrast, while growth continues in most major economies, it has slowed in many of them, including countries in the euro area, Japan and the United Kingdom. 

The US dollar has already appreciated broadly through 2018, and financial conditions facing emerging economies have become somewhat more challenging. Were the Federal Reserve in the US to raise rates faster than is currently expected, many emerging market countries could feel more intense pressures.

Executives report a more favorable view on the global economy than local (85% say improving at a global level versus 67% at local), which highlights the threat to overall growth if more barriers to the current integrated global market are raised.

Spotlight on Brexit

Executives look to established frameworks as the preferred outcome to UK and EU negotiations. 

Brexit is the prime example of previously understood trade and tariff policy being upended. Executives are clearly signaling they would prefer a known framework to replace the existing UK/EU trading relationship.

The preferred options for respondents are ones built on familiar frameworks. Existing EU trade relationships, whether Swiss, Norwegian or Canadian, can be modeled into companies’ plans and operations.

Less favored is the UK’s current White Paper, otherwise known as the Chequers plan. This will be an unfamiliar framework, which may pose new challenges to companies, especially where trade in goods and services is intertwined.

What executives signal they do not want is the continuation of uncertainty that a second referendum in the UK will entail or a fall-back to World Trade Organization (WTO) rules. This “hard Brexit” would be problematic for many companies, as the UK is yet to agree its own position with regard to the WTO and the conditions of its independent membership.

The UK’s pre-eminence in financial services looks to be under pressure, post-Brexit.

The negotiations between the UK and EU over the initial withdrawal have still to be finalized, yet alone the shape of any future trading relationship. However, UK executives in our survey are more positive about the impact of Brexit on a range of financial and operational issues than either their EU-based counterparts or those from outside the EU.

This possibly reflects that Brexit has been the lens through which the UK has considered every issue over the past two years since the referendum. UK companies have had to consider their strategies and reshape their portfolios within this environment. They may have been ahead of the curve when considering each strategic decision within an environment of geopolitical flux.

Brexit introduces new risks, but many UK executives see potential upside.

The negotiations between the UK and EU over the initial withdrawal have yet to be finalized, yet alone the shape of any future trading relationship. And yet UK executives in our survey are more positive about the impact of Brexit on a range of financial and operational issues than either their EU-based counterparts or those from outside the EU.