BY Fraser Tennant
More buoyant than downbeat is the assessment of executives as to the outlook for both global and domestic economies over the next 12 months, according to McKinsey's latest economic conditions survey.
In its ‘Economic Conditions Snapshot, June 2017’, McKinsey notes that executives view geopolitical instability and terrorism as steadily growing threats to the global economy. Furthermore, they consider geopolitical instability to be the risk most often identified as a threat to near-term global growth in every region.
According to the McKinsey survey, the top five ‘potential risks to global economic growth over the next 10 years’ are: (i) geopolitical instability in the Middle East and North Africa; (ii) threat of terrorist attacks: (iii) slowdown in China’s economic activity; (iv) rising income inequality; and (v) volatility across global financial markets.
Additional concerns expressed by executives include transitions of political leadership and changes to trade policy, as well as social unrest (the survey found that respondents in developed Asia, India and North America were the most likely to cite this). Moreover, the number of executives in Asia that identified social unrest as a global risk has more than doubled since March 2017 (up from 14 percent to 32 today) – a figure that has tripled in other developing markets (up from 4 percent to 12 percent).
Despite these continuing threats and uncertainties, executives stated that they remain buoyant about economic conditions in their home countries, with those in Europe more likely to expect improvements. Executives in North America, in comparison, were less confident. At the same time, respondents in emerging markets and developed markets have reported new divergences in their views on trade, company profits and customer demand.
“Respondents are as bullish on the global economy as they were three months ago, with nearly half saying that global economic conditions have improved in the past six months,” states the McKinsey survey. “On the global economy’s prospects, too, respondents are more positive than negative. Nearly equal shares of executives say global conditions have improved and expect conditions will continue improving in the next six months”.
Looking ahead, 39 percent of executives say they are optimistic about the long-term prospects for the world economy, basing their belief on “pockets of growth” scenarios – characterised by high but uneven and volatile global growth. That said, the survey still makes clear that respondents are equally divided on whether or not global conditions will improve during the next few months.