Debember 16, 2004
The confidence of executives around the world has fallen during the past year, and they are dubious about the prospects for trade liberalization in a second Bush administration. Executives are markedly less optimistic than they were a year ago, according to McKinsey's latest survey of executives from around the world. Although The McKinsey Global Confidence Index1 shows that more executives than not are still confident about the economic prospects of their industries and countries and of the world as a whole, the index has fallen by 12 percent since January 2004, and executives in developed Asian countries are the least confident of all.
The McKinsey findings, based on the responses of some 16,500 businesspeople from 148 countries, confirm a spate of bad economic news. The weak dollar, volatile oil prices, and geopolitical uncertainty seem to have depressed economic prospects around the world; a respected US consumer confidence survey fell to an eight-month low in November, for example, and in early December the Organisation for Economic Co-operation and Development forecast that in 2005 economic growth would be 10 percent lower in the United States and 24 percent lower in the euro zone than it had predicted just six months earlier.
Since much of the world's economic growth depends on international trade, the McKinsey survey's findings on trade liberalization are cautionary. The survey began on the day when the results of the US presidential election became known, and we asked several questions about its outcome. European executives take a much dimmer view of George W. Bush's reelection than do their counterparts from other regions, the survey found – a result that mirrors the findings of preelection surveys of European opinion. Further, 40 percent of all respondents to the McKinsey survey believe that his reelection will have a negative effect on trade liberalization.
Executives' top concerns
We also asked a number of questions about the current business concerns and strategic initiatives of executives. Pricing is their preeminent worry – ahead of talent shortages and operational capabilities. Pricing is also the area where an overwhelming majority of executives most strongly feel the impact of competition. In addition, we learned that whatever growth strategy a company may be pursuing, executives around the world overwhelmingly prefer organic growth to growth from M&A, which appears to be a last resort for most of them.
Global economy: Less hopeful than a year ago
The confidence of executives has fallen significantly since January 2004, though more are still confident than not. Telecommunications executives are among the most confident regarding the future, perhaps because the industry has worked through its debt bubble and new technologies offer new opportunities for attackers and incumbents alike. By region, executives in developed Asian countries are the least confident. Confidence increased from midyear only in developing markets, and even there it remains lower than it was last January. Continuing price pressure, higher energy costs, and the war in Iraq might account for the decline.
Hiring plans: The smallest companies have the biggest plans
More than a third of the whole sample of executives (and nearly two-thirds of those in software and IT services) expect to hire new employees during the next six months. Executives at the smallest companies and at companies in developing markets are the most disposed to hire, and they plan to hire more people than do their counterparts at other companies. In fact, the biggest companies are about as likely to lay off employees as to hire them. But C-level executives – CEOs, CFOs, and so forth – are far less likely than others to report that the size of their workforce will fall, a trend that may offer grounds for optimism about the economy's prospects.
US election: How free will trade be?
President Bush's reelection raised concerns among many survey participants about the future of trade liberalization: nearly 40 percent of the whole sample of respondents, including 56 percent of the Europeans, said that the impact would be negative. European perceptions may have been influenced by the high-profile fights over steel tariffs and agricultural protection during Mr. Bush's first term. Executives in developing markets are the most optimistic about the effect of his reelection on trade, with 37 percent expecting a positive impact. In the world as a whole, 34 percent of the respondents from the biggest companies think that the election's result will have a positive impact on their businesses, while 27 percent of the respondents from small companies do.
More Information on US Trade and Budget Deficits, and the Fall of the Dollar
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