3 minute read 15 Apr 2019
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Why executives expect continued growth in the near term

By

Steve Krouskos

EY Global Vice Chair – Transaction Advisory Services

Driving growth and investment priorities for global EY TAS. University of Florida alumnus. Son, husband and father of four.

3 minute read 15 Apr 2019

Broad-based confidence across multiple indicators underpins positive outlook.

Executives expect continued growth in the near term. Many economists are predicting slower global growth, however, only by a small margin. The more bullish view on economic outlook from respondents can be explained by their own financial performance and future potential.

What is your perspective on growth today?

While this may seem surprising, we should not lose sight of the fact that companies reported strong revenue growth in 2018. The S&P 500 was up nearly 10%, the Russell 3000 up 9%, FTSE 100 up 7% and global mid-sized companies reporting double-digit revenue gains.*

What revenue growth rates do you expect your company to achieve in the coming year?

*Source: EY analysis, S&P Capital IQ and FactSet; FTSE 100 based on 54 non-financial corporations that have reported 2018 revenues; Russell 3000 based on 2018 revenue figures available as at 1st April 2019.

According to the EY Global Capital Confidence Barometer, respondents signal continued growth in corporate earnings in 2019, even after the high benchmark set in 2018. Broader capital markets are also expected to be positive, boosted by the policy pivot by central banks in the US, Europe and China. Valuations and equity markets are also expected to improve in 2019. The rebound in 1Q19 may set the tone for the rest of the year. 

However, as always, companies should ensure their capital structure and strategy can withstand market corrections.

At the same time, a wide range of connected risks are ever present

The interconnected nature of the modern global economy presents a combination of potential downside risks that are a concern for executives.

Slowing economic activity is viewed as the greatest external risk to the growth plans of many companies. Respondents believe the most likely cause of a slowdown in growth is from tariff and trade disputes undermining carefully calibrated supply chains that have been built up over many years.

These trade disputes are often grounded in wider geopolitical tensions that have built up over the past decade. These disputes have the potential to impede the cross-border trade that has powered the economic expansion in the post-GFC period.

Similarly, a reduction in liquidity in credit markets is strongly influenced by fears over a breakdown in the globalized trading system.

Companies should evaluate how each of these interconnected issues may impact their growth agenda. Building agility and having the ability to pivot quickly as circumstances demand is key.

Rising input prices in a low-inflation environment, together with increasing competition, present near-term challenges to growth

Executives cite a range of challenges to their growth plans, but they mainly fall into two categories: the increasing costs associated with doing business and increasing competitive pressures.

Margin compression is emerging as a key concern for investors, as it erodes future earnings potential. Increasing production costs are exacerbated by the need to attract talent in a tight labor market. The continued low-inflation environment makes it difficult to pass on these increasing costs to customers. Also, barriers to entry have also been lowered by technology across most industries, increasing competitive pressures.

In response to these concerns, simultaneously adopting technology, partnering across ecosystems and acquiring new capabilities is becoming “business as usual.”

  • The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook, and identifies boardroom trends and practices in the way companies manage their Capital Agendas — EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. Our panel comprises select global EY clients and contacts and regular Thought Leadership Consulting contributors.

    • In February and March, we surveyed a panel of more than 2,900 executives in 47 countries; 68% were CEOs, CFOs and other C-level executives.
    • Respondents represented 14 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, advanced manufacturing, and real estate, hospitality and construction.
    • Surveyed companies’ annual global revenues were as follows: less than US$500m (25%); US$500m–US$999.9m (24%); US$1b–US$2.9b (21%); US$3b–US$4.9b (9%); and greater than US$5b (21%).
    • Global company ownership was as follows: publicly listed (54%), privately owned (40%), family owned (4%) and government or state owned (2%).

Summary

The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By

Steve Krouskos

EY Global Vice Chair – Transaction Advisory Services

Driving growth and investment priorities for global EY TAS. University of Florida alumnus. Son, husband and father of four.