What a difference a year makes. Nearly 30% of business leaders believe that global economic growth will decline in the next 12 months, approximately six times the level of 5% last year – a record jump in pessimism. This is one of the key findings of PwC’s 22nd annual survey of 1,300 plus CEOs around the world, launched today at the World Economic Forum Annual Meeting in Davos. This is in vivid contrast to last year’s record jump, 29% to 57%, in optimism about global economic growth prospects.
Although, all is not doom and gloom: 42% still see an improved economic outlook, though this is down significantly from a high of 57% in 2018. Overall, CEOs’ views on global economic growth are more polarised this year but trending downward. The most pronounced shift was among CEOs in North America, where optimism dropped from 63% in 2018 to 37% likely due to fading of fiscal stimulus and emerging trade tensions. The Middle East also saw a big drop from 52% to 28% due to increased regional economic uncertainty.
The drop in CEO optimism has also impacted growth plans beyond their own country borders. The US narrowly retains its position as the top market for growth at 27%, down significantly from 46% in 2018. The second most attractive market, China, also saw its popularity fall to 24%, down from 33% in 2018. Overall, India is the rising star on the list this year, recently surpassing China as the fastest growing large economy.
“CEOs’ views of the global economy mirror the major economic outlooks, which are adjusting their forecasts downward in 2019,” said Bob Moritz, Global Chairman, PwC. “With the rise of trade tension and protectionism it stands to reason that confidence is waning.”
Confidence in short-term revenue growth has fallen sharply
The unease about global economic growth is lowering CEOs’ confidence about their own companies’ outlook in the short term. Thirty-five percent of CEOs said they are ‘very confident’ in their own organisation’s growth prospects over the next 12 months, down from 42% last year.
Taking a closer look at some country-specific results, CEOs’ confidence reflected the global drop:
- In China, dropping from 40% in 2018 to 35% this year – due to trade tensions, US tariffs and weakened industrial production
- In the US, dropping from 52% to 39% – due to trade tensions and slowing economy
- In Germany, dropping from 33% to 20% – due to trade tensions, slowing economy and risk of disorderly Brexit
- In Argentina, dropping from 57% to 19% – due to recession and currency collapse
- In Russia, dropping from 25% to 15% – due to decline in export demand, currency volatility and higher unemployment
To drive revenue this year, CEOs plan to rely primarily on operational efficiencies at 77% and organic growth at 71%.
Top markets for growth: Confidence in US continues despite significant dip
The US retains its lead as the top market for growth over the next 12 months. However, many CEOs are also turning to other markets, reflected in the dramatic drop in the share of votes in favor of the US, from 46% in 2018 to just 27% in 2019. China narrowed the gap, but also saw its popularity fall from 33% in 2018 to 24% in 2019.
As a result of the ongoing trade conflict with the US, China’s CEOs have diversified their markets for growth, with only 17% selecting the US, down from 59% in 2018. The other three countries rounding out the top five for growth include Germany at 13%, down from 20%; India at 8%, down from 9%; and the UK at 8%, down from 15%.“The turn away from the US market and shift in Chinese investment to other countries are reactions to the uncertainty surrounding the ongoing trade dispute between the US and China,” stated Moritz.
Threats to growth: Driven by economy, not existential
As indicators predict an imminent global economic slowdown, CEOs have turned their focus to navigating the surge in populism in the markets where they operate. Trade conflicts*, policy uncertainty, and protectionism have replaced terrorism, climate change, and increasing tax burden in the top ten list of threats to growth.
Of CEOs ‘extremely concerned’ about trade conflicts, 88% are specifically uneasy about the trade issues between China and the US. Ninety-eight percent of US CEOs and 90% of China’s CEOs have voiced these concerns. Of China’s CEOs who are ‘extremely concerned’ about trade conflicts, a majority are taking a strong reactive approach, with 62% adjusting their supply chain and sourcing strategy. Fifty-eight percent are adjusting their growth strategy to different countries.
Data & Analytics and Artificial Intelligence
This year’s survey took a deep dive into Data & Analytics and Artificial Intelligence (AI), two key areas on leaders’ radar, to get CEOs’ insights on the challenges and opportunities.
Data & Analytics – Lingering information gap
This year’s survey revisited questions about data adequacy first asked in 2009. It was found that CEOs continue to face issues with their own data capabilities, resulting in a significant information gap that remains ten years on. Despite billions of dollars of investments made in IT infrastructure over this time period, CEOs report still not receiving comprehensive data needed to make key decisions about the long-term success and durability of their business.
Leaders’ expectations have certainly risen as technology advances, but CEOs are keenly aware that their analysis capabilities have not kept pace with the volume of data which has expanded exponentially over the past decade. When asked why they do not receive comprehensive data, CEOs point to the ‘lack of analytical talent’ (54%), followed by ‘data siloing’ (51%), and ‘poor data reliability’ (50%) as the primary reasons. When it comes to closing the skills gap in their organisation, CEOs agree that there is no quick fix. Forty-six percent see significant retraining and upskilling as the answer, with 17% also citing establishing a strong pipeline directly from education as an option.
“As technological changes continue to disrupt the business world, people with strong data and digital skills are in even higher demand and increasingly harder to find,” shared Moritz. “That said, the need for people with soft skills is also critical, which is why business, government and educational institutions need to work together to address the demands of the evolving workforce.”
Eighty-five percent of CEOs agree that AI will dramatically change their business over the next five years. Nearly two-thirds view it as something that will have a larger impact than the internet.
Despite the bullish view on AI, 23% of CEOs currently have ‘no current plans’ to pursue AI, with a further 35% ‘planning to do so’ in the next three years. Thirty-three percent have taken ‘a very limited approach’. Fewer than 1 in 10 CEOs have implemented AI on a wide scale.
When it comes to the impact AI will have on jobs, 88% of China’s CEOs believe AI will displace more jobs than it creates. Other Asia-Pacific CEOs are also pessimistic at 60%, compared to 49% globally. CEOs in Western Europe and North America are less doubtful, with 38% and 41% believing AI will displace more jobs than it creates.
“Although organisations in Asia-Pacific, North America, and Western Europe have reported comparable levels of AI adoption, we see a growing divide over their belief about the potential impacts of AI on society and the role government should play in its development,” stated Moritz.
India’s Opportunity to Become a Global Manufacturing Hub
Beyond the unprecedented health impact, the COVID‑19 pandemic has been catastrophic for the global economy and businesses and is disrupting manufacturing and Global Value Chains (GVCs), disturbing different stages of the production in different locations around the world. Furthermore, the pandemic has accelerated the already ongoing fundamental shifts in GVCs, driven by the aggregation of three megatrends: emerging technologies; the environmental sustainability imperative; and the reconfiguration of globalization.
In this fast-evolving context, as global companies adapt their manufacturing and supply chain strategies to build resilience, India has a unique opportunity to become a global manufacturing hub. It has three primary assets to capitalize on this unique opportunity: the potential for significant domestic demand, the Indian Government’s drive to encourage manufacturing, and with a distinct demographic edge, including considerable proportion of young workforce.
These factors will position India well for a larger role in GVCs. A thriving manufacturing sector will also generate additional benefits and help India deliver on the imperatives to create economic opportunities for nearly 100 million people likely to enter its workforce in the coming decade, to distribute wealth more equitably and to contain its burgeoning trade deficit.
The World Economic Forum’s new White Paper entitled Shifting Global Value Chains: The India Opportunity, produced in collaboration with Kearney, found India’s role in reshaping GVCs and its potential to contribute more than $500 billion in annual economic impact to the global economy by 2030. The White Paper presents five possible paths forward for India to realize its manufacturing potential.
The insights presented in the White Paper reflect the perspectives of leaders from multiple industries in the region. The five possible solutions include:
· Coordinated action between the government and the private sector to help create globally competitive manufacturing companies
· Shifting focus from cost advantage to building capabilities through workforce skilling, innovation, quality, and sustainability
· Accelerating integration in global value chains by reducing trade barriers and enabling competitive global market access for Indian manufacturers
· Focusing on reducing the cost of compliance and establishing manufacturing capacities faster
· Focusing infrastructure development on cost savings, speed, and flexibility
“For India to become a global manufacturing hub, business and government leaders need to work together to understand ongoing disruptions and opportunities, and develop new strategies and approaches aimed at generating greater economic and social value”, said Francisco Betti, Head of Shaping the Future of Advanced Manufacturing and Production, World Economic Forum.
“A thriving manufacturing sector could potentially be the most critical building block for India’s economic growth and prosperity in the coming decade. The ongoing post-COVID rebalancing of Global Value Chains offers India’s government and business leaders a unique opportunity to transform and accelerate the trajectory of manufacturing sector”, said Viswanathan Rajendran, Partner, Kearney.
This White Paper aims to serve as an initial framework for deliberation and action in the manufacturing ecosystem. The World Economic Forum, in collaboration with Kearney, will continue to develop this agenda by working closely with the manufacturing community in India to generate new insights, help inform discussions and strategy decisions, facilitate new partnerships, and provide a platform for exchanges with the global community.
New Skills Development Key to Further Improving Students’ Learning Outcomes
Learning outcomes in Russia would benefit significantly from a focus on teaching new skills that are tailored to the modern labor market, says a new World Bank report, New Skills for a New Century: Informing Regional Policy.
Russia’s education system has traditionally been well-performing and efficient, with Russian students appearing among the top performers globally. However, today’s labor market requires “21st century skills” – a combination of skills, knowledge, and expertise that students need to succeed in the modern world.
“Russia’s education system could achieve better teaching and learning outcomes if it focused more on developing 21st-century skills,” says Tigran Shmis, World Bank Senior Education Specialist. “There is a strong relationship between the quality of the school environment, innovative teaching practices, students’ perception of school, and students’ learning outcomes.”
According to the report, 38 percent of Russian schools today are not equipped with workshops and 46 percent do not have scientific laboratories. And, 77 percent of educational institutions do not have dedicated places for integrated lessons that stimulate the development of new skills and team interaction.
The way teaching is delivered, the physical characteristics of the learning environment, and the school’s psychological climate all affect students’ learning results. The study provides an insight into how these factors impact the development of students’ skills, including 21st century and digital skills. Along with data analytics, the study includes a qualitative perspective of modern teaching and learning in Russia, as well as the impacts of the COVID-19 pandemic on teaching and learning.
“Developing the ability of students to master 21st century skills is critical to ensuring their future employment and career success,” says Renaud Seligmann, World Bank Country Director for Russia. “Studies in Russia have shown that businesses having access to workers with these skills will also be critical for growth and productivity. In turn, high-quality human capital is a cornerstone of the resilience and sustainability of the national economy.”
The report provides recommendations for how schools in Russia can better help students excel. For example, teachers who practice innovative teaching are more likely to drive higher achievement. Modern teaching practices can be supported by expanding the use of technology and enhancing the learning environment in classrooms. Technology should be made available in schools on an equitable basis to improve student learning and enhance teachers’ professional development. Education policymakers should prioritize the prevention of bullying and the development of supporting measures to ensure a positive school climate.
Despite the physical return of students to schools, the COVID-19 pandemic is causing continued learning losses. Therefore, new equipment, ICT, and innovative teaching methods are needed to enable teachers to improve their practices and compensate such learning losses.
Post-COVID-19, regaining citizen’s trust should be a priority for governments
The COVID-19 crisis has demonstrated governments’ ability to respond to a major global crisis with extraordinary flexibility, innovation and determination. However, emerging evidence suggests that much more could have been done in advance to bolster resilience and many actions may have undermined trust and transparency between governments and their citizens, according to a new OECD report.
Government at a Glance 2021 says that one of the biggest lessons of the pandemic is that governments will need to respond to future crises at speed and scale while safeguarding trust and transparency. “Looking forward, we must focus simultaneously on promoting the economic recovery and avoiding democratic decline” said OECD Director of Public Governance Elsa Pilichowski. “Reinforcing democracy should be one of our highest priorities.”
Countries have introduced thousands of emergency regulations, often on a fast track. Some alleviation of standards is inevitable in an emergency, but must be limited in scope and time to avoid damaging citizen perceptions of the competence, openness, transparency, and fairness of government.
Governments should step up their efforts in three areas to boost trust and transparency and reinforce democracy:
Tackling misinformation is key. Even with a boost in trust in government sparked by the pandemic in 2020, on average only 51% of people in OECD countries for which data is available trusted their government. There is a risk that some people and groups may be dissociating themselves from traditional democratic processes.
It is crucial to enhance representation and participation in a fair and transparent manner. Governments must seek to promote inclusion and diversity, support the representation of young people, women and other under-represented groups in public life and policy consultation. Fine-tuning consultation and engagement practices could improve transparency and trust in public institutions, says the report. Governments must also level the playing field in lobbying. Less than half of countries have transparency requirements covering most of the actors that regularly engage in lobbying.
Strengthening governance must be prioritised to tackle global challenges while harnessing the potential of new technologies. In 2018, only half of OECD countries had a specific government institution tasked with identifying novel, unforeseen or complex crises. To be fit for the future, and secure the foundations of democracy, governments must be ready to act at speed and scale while safeguarding trust and transparency.
Governments must also learn to spend better, according to Government at a Glance 2021. OECD countries are providing large amounts of support to citizens and businesses during this crisis: measures ongoing or announced as of March 2021 represented, roughly, 16.4% of GDP in additional spending or foregone revenues, and up to 10.5% of GDP via other means. Governments will need to review public spending to increase efficiency, ensure that spending priorities match people’s needs, and improve the quality of public services.
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