Optimism varies among global CEOs, but slow economic growth expected in 2015

BY Fraser Tennant

CEOs are less optimistic about the prospects for global growth than they were one year ago, according to PwC’s new Annual Global CEO Survey.

The Survey, the 18th of its kind, conducted 1322 interviews with CEOs in 77 countries during the last quarter of 2014. Its key findings include: (i) 37 percent of CEOs think that global economic growth will improve in 2015, down from 44 percent the previous year; (ii) 17 percent of CEOs believe global economic growth will decline, more than twice as many as a year ago; and (iii) 44 percent of CEOs expect economic conditions to remain constant.

Broken down regionally, CEOs in Asia Pacific were found to the most optimistic about the global economy, with 45 percent expecting improvement. In the Middle East this figure was 44 percent and in North America, 37 percent. However, only 16 percent of CEOs in Central and Eastern Europe expect economic improvement.

Despite the overall declining outlook for the global economy, CEOs are confident about the prospects for their own company - 39 percent believe their company’s revenues will grow in the next 12 months.

“The world is facing significant challenges: economically, politically and socially," said Dennis M. Nally, chairman of PricewaterhouseCoopers International. “CEOs overall remain cautious in their near-term outlook for the worldwide economy, as well as for growth prospects for their own companies.

“While some mature markets like the US appear to be rebounding, others like the Eurozone continue to struggle. CEO confidence is down notably in oil-producing nations around the world as a result of plummeting crude oil prices. Russia CEOs, for example, were the most confident in last year's survey, but are the least confident this year.

“Finding the right strategic balance to sustain growth in this changing marketplace remains a challenge.”

Other concerns highlighted by CEOs include: the availability of key skills; over-regulation; fiscal deficits and debt burdens; geopolitical uncertainty; increasing taxes; cyber threats and the lack of data security; social instability; shifting consumer patterns; and the speed of technological change.

Report: A marketplace without boundaries? Responding to disruption

Collaboration and board engagement leads to business sustainability claims new research

BY Fraser Tennant

Companies that embrace collaboration and foster board engagement have a greater chance of achieving business sustainability, according to a new global research study.

The study, carried out for a sixth consecutive year by MIT Sloan Management Review (MIT SMR), the Boston Consulting Group (BCG) and the UN Global Compact, surveyed more than 3,795 executives and managers from 113 countries about the sustainability challenges they faced.

 “While collaboration is not yet the norm, among those who are doing it, we are increasingly seeing a focus on transformational, strategic results”, said David Kiron, executive editor of MIT SMR and co-author of the study. “More than half of reported collaborations aspire to fundamentally change the market in which the business operates, so sustainability efforts are much less likely to be discrete projects and much more likely to engage a company’s entire ecosystem—from suppliers and customers to governments and academic institutions.”

The study’s key findings include: (i) 61 percent of executives whose companies participated in sustainability-related partnerships view these collaborations as quite or very successful; and (ii) 90 percent of respondents recognise the importance of sustainability collaboration but only 47 percent reported that their companies are actively collaborating.

Focusing on board engagement as a driver of sustainability success, the study found that 86 percent of respondents felt that company boards should play a significant role in driving their company’s sustainability efforts. However, just 42 percent considered their own boards to be at least moderately engaged with the sustainability agenda.

“We identified several ways to overcome the barriers to board participation," said co-author Knut Haanaes, a Geneva-based senior partner at BCG. “They include establishing a broader vision of the board as steward of all stakeholders and managers of risk versus the traditional maximising only of shareholder financial value.”

Summing up the findings of the study, co-author Georg Kell, executive director of the UN Global Compact, said: “With commercial activities and investments reaching every corner of the earth, companies increasingly face complex uncertainties and risks related to social, environmental, and governance issues. Companies are starting to see that when they provide a collective voice, share risks, and pool resources, they can deliver transformative solutions that benefit both business and society.”

Report: Joining Forces: Collaboration and Leadership for Sustainability

UK financial services “optimistic” as business takes an upward trajectory

BY Fraser Tennant

The UK financial services sector is on upward trajectory with rising business volumes being reported, according to the latest CBI/PwC Financial Services Survey.

The Survey, which draws on data from the three months to December, shows that, overall, business volumes rose at the fastest pace since the mid-1990s, with demand from UK households and corporates being underpinned by solid growth across many sectors and industries.

“The upswing in growth among financial services firms continues on a solid footing, with overall optimism, business volumes and profits up," said Rain Newton-Smith, Director of Economics at the CBI.

The Survey’s key findings show that: (i) 64 percent of financial services firms said that business volumes were up, while 7 percent said they were down, giving a balance of +57 percent - the strongest growth since December 1996 (+79 percent); (ii) 65 percent of firms expect business volumes to increase, while 6% said they will fall, giving a balance of +59 percent; and (iii) 49 percent of financial services firms said they felt more optimistic about the overall business situation compared with three months ago, while 12 percent  said they felt less optimistic, giving a balance of +37 percent.

However, it was also found that building societies were the exception. “Building societies have struggled this quarter, likely as a result of the impact of the Mortgage Market Review, constrained buyer affordability in London and the South East, and stronger competition in the mortgage lending market," confirms Mr Newton-Smith.  

Elsewhere, financial services firms reported strong income growth from fees, commissions and premiums in particular. Investment opportunities are also at a premium.

Kevin Burrowes, UK financial services leader at PwC, said “Financial services firms continue to be optimistic, but we will see them investing more to stay ahead of new entrants, deal with technology challenges, meet increasing regulatory and structural reform costs and deliver better results for customers.” 

Mr Newton-Smith added “It’s encouraging to see the majority of companies planning to increase their investment spend, especially on IT and marketing, to increase efficiency and to reach new customers as competition and technology change the nature of the sector.”

Report: CBI/PwC Financial Services Survey

European real estate industry “awash with capital” and set for busy 2015

BY Fraser Tennant

A busy and profitable 2105 is the outlook for the European real estate industry, according to the new 'Emerging Trends in Real Estate' Europe 2015 report published by PwC and the Urban land Institute (ULI).

The report, which features the views of 500 industry experts (investors, fund managers, developers, property companies, lenders, brokers, advisers and consultants), lists a number of cities which are considered to offer significant real estate investment opportunities this year. The cities, many of which were badly affected by the economic downturn, include Madrid, Athens, Birmingham, Amsterdam, and Lisbon.

According to the report, 70 percent of investors expect to see more equity and debt flowing into their markets in 2015, while 82 percent are of the opinion that “the availability of suitable assets will have a moderate or significant impact on their business this year".

However, despite such optimism, the report makes clear that major concerns remain with fragile economic conditions, weak fundamentals, and volatile geopolitical scenarios cited as the reasons for such uncertainty.

“Real estate investors will face a tricky balancing act in 2015," said Simon Hardwick, real estate partner at PwC Legal and one of the authors of the report. “The market is awash with capital surging into Europe from around the world. On the face of it, this is a nice problem to have, but we expect to see prices continuing to rise due to a shortage of assets. And despite an uncertain economic climate across Europe, investors will have to look beyond the major markets to secondary cities and assets they may not have considered before. This presents both an opportunity and a challenge.”

Lisette Van Doorn, chief executive of the ULI Europe, added “As confidence has returned to global real estate markets over recent years, there has been a progressive movement up the risk curve. Investors have found prime assets expensive and hard to source, and have in turn looked to find new opportunities in recovering secondary cities, secondary assets and development opportunities, as well as new or alternative real estate classes."

Now in its 12th edition, the 'Emerging Trends in Real Estate' Europe report forecasts real estate investment and development trends, cities, property sectors, and real estate finance and capital markets trends.

Report: Emerging Trends in Real Estate Europe 2015

Resurgent US re-emerges as dominant global economic force

BY Fraser Tennant

The US has reclaimed its position as the dominant force in the global economy, according to leading economists.

Following 15 years of stagnant growth, influential figures at JPMorgan Chase & Co, Deutsche Bank AG and BNP Paribas SA, suggest that 2015 will see the US economy expand by 3.2 percent – its strongest rate of growth in a decade.

The resurgence of the US as a leading economic force is largely being credited to an improving jobs market – the unemployment rate has fallen to 5.6 percent (the lowest since 2008) and 2014 saw an additional three million people in work – which in turn has led to an increase in personal consumption expenditure ($11.5 trillion in 2013).

“The US is again the engine of global growth,” said Allen Sinai, chief executive of Decision Economics in New York. “The economy is looking stellar and is in its best shape since the 1990s.”

While sectors including construction, healthcare, manufacturing and business services are all benefiting from US economic growth, wages, however, have stagnated with average hourly earnings falling 0.2 percent last month.

“We are still waiting to see the kind of strengthening of wage numbers we would expect to be consistent with what we are seeing elsewhere in terms of growth and the absolute jobs numbers,” said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. “It’s just a matter of time before wage growth picks up.”

The surge in US growth has also been attributed to stringent policy-making – in particular the budget decisions which have navigated the US through the economic storm with far greater success than that of their European counterparts.

“Progress has been far greater in the US,” said Glenn Hubbard, dean of the Columbia Business School in New York and a former chief White House economist. “Looking across much of the rest of the world, the US continues to dominate.”

At the same time as US growth goes from strength to strength, the economies of Brazil, Russia, India and China – the BRIC nations – are flagging with debt, recession, US and European sanctions and plummeting oil prices all playing a part.

News: US Retakes Helm of Global Economy