CEO pessimism over global growth reaches record high

• In every region across the world, CEOs predict slower growth.
• South African CEOs are pessimistic about the rate of global economic growth, with 44% believing that it will decline over the next 12 months.
• CEOs in SA are more pessimistic than their global counterparts regarding their organisations’ growth prospects in 2020.
• Only 14% of CEOs in SA are ‘very confident’ about their 12-month revenue prospects, compared to 18% in 2019.

As we enter a new decade, CEOs are showing record levels of pessimism in the global economy, with 53% predicting a decline in the rate of economic growth in 2020. This is up from 29% in 2019 and just 5% in 2018 – the highest level of pessimism since PwC started asking this question in 2012. By contrast, the number of global CEOs projecting a rise in the rate of economic growth dropped from 42% in 2019 to only 22% in 2020. 

These are some of the key findings of PwC’s 23rd annual survey of almost 1 600 CEOs from 83 countries across the world, launched this week at the World Economic Forum annual meeting in Davos, Switzerland.

CEOs in SA are also pessimistic about the rate of global economic growth, with 44% (compared to 35% in 2019) believing that it will decline over the next 12 months.

In every region – Africa, Asia-Pacific, Central and Eastern Europe (CEE), Latin America (including Mexico), the Middle East, North America and Western Europe – the prevailing sentiment is the same: Global economic growth will slow in 2020. In the past two years, the percentage of global CEOs who believe global GDP growth will decline has increased tenfold (from 5% to 53%).

Commenting on the survey results, Dion Shango, CEO of PwC Africa says: “No matter where CEOs look or from where they are looking, the path is fraught with uncertainty. Pessimism among South African CEOs has deepened this year and is characterised by a lack of business confidence and a decline in business activity overall. The current state of the economy and socio-political uncertainty are dampening business expectations.

“Despite the current uncertainty, there are still opportunities for South African CEOs to pursue. Faced with uncertainty, business leaders need to act decisively and quickly. Instead of looking inward, they should broaden their field of vision and strive to create a broader range of options to pursue. Some of these opportunities include the upskilling, development and training of their people. CEOs also need to look at how they can structure and further enhance their operational efficiencies.

“Making decisions in a way that is more resilient will enable organisations to thrive in the full spectrum of uncertain outcomes.”

CEOs’ confidence in own revenue growth declines

Globally, CEOs are not so positive about their own companies’ prospects for the year ahead, with only 27% of CEOs saying they are “very confident” in their own organisation’s growth over the next 12 months. This is the lowest level observed since 2009, down from 35% last year.

CEOs in SA are more pessimistic than their global counterparts regarding their growth prospects in 2020. Only 14% of CEOs in SA are “very confident” about their 12-month revenue prospects compared to 18% in 2019; this is 13 points below the global average (27%). Forty-four percent of South African CEOs (compared to 35% in 2019) also believe that global economic growth will decline over the next 12 months.

Despite a significant decline in optimism, 78% of South African CEOs, compared to 56% globally, are more confident about their own company’s prospects for revenue growth over the next three years.

While confidence levels are generally down across the world, there is a wide variation from country to country, with China and India showing the highest levels of confidence among major economies at 45% and 40% respectively, and the US at 36%, Canada at 27%, the UK at 26%, Germany at 20%, France (18%), and Japan having the least optimistic CEOs with only 11% of CEOs very confident of growing revenues in 2020.

When asked about their own revenue growth prospects, the change in CEO sentiment has proven to be an excellent predictor of economic growth. Analysing CEO forecasts since 2008, the correlation between CEO confidence in their 12-month revenue growth and the actual growth achieved by the global economy has been very close. If the analysis continues to hold, global growth could slow to 2.4% in 2020. This is below many estimates, including the 3.4% October growth prediction from the IMF.

Top countries for growth

Overall, the US retains its lead as the top market CEOs look to for growth over the next 12 months at 30%; one percentage point ahead of China. However, ongoing trade conflicts and political tensions have seriously dented the attractiveness of the US for Chinese CEOs. The US’s loss has been Australia’s gain, with 45% of China’s CEOs now looking to Australia as a top-three key growth market compared with only 9% two years ago.

The other countries making up the top five for growth are unchanged from last year: Germany (13%), India (9%) and the UK (9%).

The top three countries that South African CEOs consider to be most important for their organisation’s overall growth rate are Namibia (19%); Australia, Botswana and the UK (14%); and Kenya (11%).

Threats to growth

When asked about the top threats to their global organisation’s growth prospects in 2019, uncertain economic growth ranked outside the top 10 concerns for CEOs at number 12. This year it has leapt to third place, just behind trade conflicts – another risk that has risen on the CEO agenda – and the perennial over-regulation, which again topped the table as the number one threat for CEOs.

In SA, CEOs’ concerns about a broad range of business, societal and economic threats have risen. The top threats to growth for South African CEOs are: uncertain economic growth (SA: 75%; global: 33%); policy uncertainty (SA: 67%; global: 33%); social instability (SA: 67%; global: 18%); over-regulation (SA: 53%; global: 36%); and populism (SA: 44%; global: 27%).

Regarding business threats, 42% of South African CEOs (compared to 32% globally) said they were “extremely concerned” about the availability of key skills, unemployment (SA: 50%; global: 28%); 22% (compared to 56% globally) cited cyber threats; and 36% (compared to 15% globally) identified volatile energy costs as top concerns.

Globally, CEOs are also increasingly concerned about cyber threats and climate change as well as environmental damage. Despite the increasing number of extreme weather events and the intensity of the debate on the issue, the magnitude of other threats continues to overshadow climate change, which still does not make it into CEOs’ top 10 threats to growth.

Policing cyberspace

While CEOs around the world express clear concerns about the threat of over-regulation, they are also predicting significant regulatory changes in the technology sector. Globally, 78% of CEOs (compared to 71% of South African CEOs) believe that governments will introduce new legislation to regulate the content on both the Internet and social media to break up dominant tech companies. Furthermore, 51% of global CEOs (SA: 50%) predict that governments will increasingly compel the private sector to financially compensate individuals for the personal data that they collect.

Most CEOs (Global: 83%; SA: 75%) stated that the increasing complexity of cyber threats is shaping their businesses, followed by growing public concern over data privacy (Global: 61%; SA: 48%) and vulnerabilities in supply chains and business partners (Global: 61%; SA: 48%).

Shirley Machaba, CEO for PwC South Africa adds: “It is becoming increasingly clear that many societies will no longer tolerate self-regulation. CEOs will increasingly need to collaborate with a diverse range of governments to shape appropriate solutions that deploy technology and leverage data in a safe way, one that protects consumers and respects their values while fostering innovation.”

The upskilling challenge

While the shortage of key skills remains a top threat for CEOs and they agree that retraining/upskilling is the best way to close the skills gap, they are not making much headway in tackling the problem, with only 18% of CEOs globally and 6% of South African CEOs saying they have made “significant progress” in establishing an upskilling programme. This sentiment is echoed by workers.

The fourth industrial revolution has ushered in new business models and new ways of working that require critical new technical, digital and soft skills. Those skills are in very short supply.

In a separate survey by PwC, 77% of 22 000 workers around the world say they would like to learn new skills or retrain, but only 33% feel they have been given the opportunity to develop digital skills outside their normal duties.

“Workers need to be convinced that companies are engaging in upskilling efforts to improve their employability, not just to improve the bottom line,” Machaba adds.

Climate change: challenge or chance

Although climate change does not appear in the top 10 threats to global CEOs’ growth prospects, CEOs are expressing a growing appreciation of the upside of taking action to reduce their carbon footprint. Compared to a decade ago, when we last asked this question, CEOs are now twice as likely to “strongly agree” that investing in climate change initiatives will boost reputational advantage (30% in 2020, compared with 16% in 2010) and 25% of CEOs today, compared with 13% in 2010, see climate change initiatives leading to new product and service opportunities for their organisation.

In SA, 19% of CEOs “strongly agree” (versus 10% in 2010) that climate change initiatives will lead to new product and service opportunities for their respective organisations.

While views of climate change-driven product and service opportunities have remained relatively stable in the US and the UK, there has been a dramatic shift in views in China over the last 10 years. China is an interesting case study because it is both the largest market for green products and the most polluting country, from a carbon perspective. In 2010, only 2% of China's CEOs saw climate change leading to opportunities, whereas in 2020 this has risen to 47%, by far the largest increase of CEOs in any country included in the survey. However, for these opportunities to turn into long-term success stories, the principles of climate change need to be embedded right across a business’s supply chain and customer experience.

Shango concludes: “Looking ahead, there is one thing of which we are certain: when it comes to the most pressing topics confronting CEOs, collaboration between and among organisations, individuals and governments can meaningfully enhance not only their own prospects, but the prosperity and vitality of society too."