Are we headed for economic decline in 2020? CEOs around the world think so

Are we headed for economic decline in 2020? CEOs around the world think so

If you could predict the future, what would you do with that information? Use it for your own gain, or apply it to benefit your clients and community? According to the latest PricewaterhouseCoopers (PwC) survey of global CEOs, 2020 may be a tough year.

PwC has been surveying CEOs around the world for the last 23 years and has found “that CEO attitudes are quite accurate in anticipating both the direction and the strength of the global economy.”

During fall of 2019, PwC surveyed 1,581 CEOs from 83 territories on their perspectives for global economic growth, prospects for revenue growth in their organizations over the next 12 months and over the coming three years, the threats facing their organizations, and the responses of their organizations to those threats.

Can CEOs predict the future?

By performing statistical analysis on survey responses back to 2008, PwC found a correlation between the year-to-year change in the CEOs’ optimism regarding the prospects for growth in their organizations for the coming year and the actual global rate of growth for that year. When CEO confidence for the future rose, the actual global growth rate for that year also increased, almost in lockstep, making this a reliable leading indicator of the global growth rate for the coming year.

Applying this relationship between CEO optimism about their companies for 2020 and global growth, PwC predicts a global growth rate of just 2.4%, a full percentage point lower than the International Monetary Fund (IMF) October 2019 estimate of 3.4%. While this relationship so far has been a correlation, and does not demonstrate causation, advisors may want to alert their clients that an economic decline could be on the way.

Record optimism to record pessimism in two years

Just two years ago, CEO respondents demonstrated a record level of optimism, with 58% of respondents registering a belief in continuing growth in the world economy, and only 5% believing that global GDP would decline.

But, for 2020, those positions are nearly reversed: 53% believe global GDP will decline, and only 22% believe growth will improve. These levels of pessimism haven’t been seen in this survey since 2009, when the world was emerging from the global recession. The most pessimistic CEOs are those from North America: 63% believe that global growth will decline over the next 12 months.

Four main themes

In the face of record low unemployment, a booming stock market, and elevated consumer confidence, this pessimism seems odd. However, the PwC analysts attribute the plunge from record high optimism to record low pessimism to growing uncertainty in the world. Uncertainty was one of four themes that emerged from this year’s survey. Let’s take a brief look at these themes.

  1. Uncertainty erodes optimism. CEOs cited ongoing trade conflicts, over-regulation, climate change, cyber threats, and uncertain economic growth among the biggest threats to their organizations for the coming year. The cumulative weight of uncertainty in these areas seems to dampen the instincts executives rely on to make key decisions, leading them to be more pessimistic.
  2. Keeping cyberspace safe. Implementation of technology is outpacing the development of regulatory systems and standards to mitigate cyber threats, which are increasingly disastrous. Many CEOs expressed concern that the responses of governments may result in a fractured internet, obliterating the promise of one global platform for information and commerce. If boundaries are too tight, innovation may suffer. Too loose, and cultural norms of privacy may be violated.
  3. Up-skilling is no longer optional. New jobs require a mixture of technical and soft skills, a rare and expensive combination. Businesses have no choice but to retrain their employees. Companies that do are rewarded with stronger corporate culture, improved retention, increased innovation, and higher productivity. CEOs at companies with robust up-skilling programs were more optimistic about global economic growth and revenue growth in their own organizations.
  4. Climate change as an opportunity. CEOs are increasingly seeing an upside to reducing their carbon footprint. However, the continuing challenge will be to create growth without increasing waste from production.

The way forward

As Bob Moritz, chairman of PwC Network, says in the conclusion, “Uncertainty can be an excuse to take defensive actions that may make tactical sense, but are strategically counterproductive in both the short term and the long term.”

For Firms of the Future, awareness of the possibility of slowing global growth for the coming year and the concerns of CEOs around the world will assist you in guiding your clients through uncertainty and into positive action!