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.
How to measure blockchain’s value in four steps
To help organizations identify the value of blockchain technology and build a corresponding business case, the World Economic Forum, the International Organization for Public-Private Cooperation, has released the Blockchain Value Framework as part of the white paper, Building Value with Blockchain Technology: How to Evaluate Blockchain’s Benefits.
Co-designed with Accenture, the Blockchain Value Framework is the second in a series of white papers for organizations to better understand that blockchain technology is a tool deployed to achieve a specific purpose, not a goal in itself. This new framework provides organizations with the tools to begin measuring blockchain’s value, including key questions to consider. It is the first visual roadmap of its kind and is based on a global survey of 550 individuals across 13 industries, including automotive, banking and retail, public-sector leaders, chief executive officers and an analysis of 79 blockchain projects.
“In our last paper, we stressed that blockchain deployment is not the end goal,” said Sheila Warren, Head of Blockchain at the World Economic Forum. “We wanted to get beyond the hype. This new framework is for those business leaders that have figured out blockchain is the right solution for a specific problem, but don’t know what to do next.”
“Organizations need to make business decisions and investments with confidence and that requires proof of the value-add and an analysis of why, or why not, they should consider something new,” said David Treat, Managing Director and Global Blockchain Lead at Accenture. “Through this new framework, we aim to educate businesses and challenge them to rethink their current business models, relationships between ecosystem partners, customers and their investments in technology. The path to blockchain adoption starts here with evaluating the technical and strategic priorities and aligning them with investments in innovation.”
The framework starts with questions on blockchain’s role and desired impact. Assessing potential pain points and areas for opportunity without thinking about the technology is essential. Next is to examine the three key dimensions of blockchain’s role alongside its capabilities. The roadmap can assist organizations in moving from current-state assessment to future blockchain opportunity, and to identify where the value will be created and delivered. Cost savings, increased revenue and improved customer experience are all possible business case results.
According to the global survey conducted in conjunction with the new framework, 51% of survey respondents identified “missing out on developing new products/services” as the number one expectation if they do not invest in blockchain technology in the near future. The other two most common answers were missing out on speed/efficiency gains (23%) and missing out on cost savings (15%). The interviews highlighted the potential of the technology to simplify and optimize complete value chains through the sharing of simplified real-time data with increased efficiency. However, the paper also cautions businesses to carefully consider whether blockchain is the best solution, relative to other technologies or other digitization strategies. As noted in the Blockchain Beyond the Hype white paper, blockchain may not be a viable solution or it may not be the correct time to pursue this avenue.
In nine of the industries surveyed, the full traceability and integrity of the data were the top two potential advantages of using blockchain technology. Most of the industries surveyed could benefit from smart contracts and automation provided by blockchain. Surprisingly, few organizations selected “new business products or services” as one of the benefits. This suggests the current focus for organizations is on improving existing products and services before considering investing in new opportunities.
“We may be moving beyond the hype, but blockchain isn’t going away. Central banks are experimenting with digital currencies and supply chain networks are piloting blockchain policies. We are also seeing companies like Facebook and Starbucks entering the blockchain and cryptocurrency space. This means practical use cases of the technology will become more widespread,” Warren said. “A draft of the framework was further validated at a multilateral session of global leaders at the World Economic Forum Annual Meeting 2019 in Davos-Klosters.”
Luxembourg has achieved high levels of growth and well-being but must do more
Luxembourg’s economy has grown at a robust pace and has enviable levels of well-being, but public policy can do more to make growth sustainable and inclusive, according to a new report from the OECD.
The latest OECD Economic Survey of Luxembourg discusses the challenges of making housing more affordable and reviving productivity growth. The Survey projects economic expansion will continue, with growth of about 2% this year and 2.5% next, but cautions about the risks of a possible downturn.
The Survey, presented in Luxembourg City by OECD Secretary-General Angel Gurria, Luxembourg’s Finance Minister Pierre Gramegna and Housing Minister Sam Tanson, discusses the need to address financial sector risks, ageing-related pressures and use tax reform to support sustainable growth.
“Luxembourg is in an enviable position, with growth that outpaces its neighbours and high levels of well-being for its citizens,” Mr Gurria said. “The challenge facing policymakers today is to ensure that Luxembourg remains prosperous and that this prosperity is widely shared, through reforms that enhance economic resilience, inclusiveness and sustainability.”
Reducing financial risks should be a priority, the Survey said. With rising household indebtedness creating vulnerabilities for families and banks alike, the Survey recommends Luxembourg introduce borrower-based macroprudential instruments, such as caps on loan-to-value or debt-service-to-income ratios, as foreseen in draft legislation.
It also underlines the need to further enhance financial sector resilience and foster the transition to a low-carbon economy. The disclosure of climate-related risks by financial intermediaries, in line with the recommendations by the Task Force on Climate-related Financial Disclosures, should be pursued. Further reinforcement of financial supervision, namely by continuing to monitor credit risks on intra-group bank exposures and to enhance on-site inspections and data collection on investment funds, is also necessary.
The Survey points out the need to make the housing market more efficient and more equitable. Tax policy can be used to boost housing supply, notably by reforming recurrent taxes on immovable property to hike the cost of not using land available for construction. Increasing residential density, ensuring that municipalities penalise landowners and developers for non-use of building permits, and phasing out or reducing the tax deductibility of mortgage interest should also be considered.
To improve inclusiveness, Luxembourg can directly finance new land acquisition by public providers of social housing and better use means testing to target its provision. Linking housing allowances and social housing rents to local rents is also recommended.
Fiscal policy should support growth and economic dynamism while ensuring the sustainability of public finances. For example, continuing the move toward higher taxes and excise duties on transport fuel – especially on diesel – combined with flanking measures over the short term for the most affected poor households, will address congestion and climate change risks while creating new revenue streams.
The Survey notes that stronger productivity growth will above all require enhanced training so as to continually upgrade the skills of the workforce. In addition, modernisation of bankruptcy law would ease early restructuring and second chance opportunities and facilitate the exit of non-viable firms. Elimination of restrictions on advertising and marketing in professional services would boost competition. Also, promotion of cutting-edge technologies by public sector users would boost adoption by businesses.
Bangladesh: Climate-Smart Growth Key to Achieving Upper-Middle Income Status
The World Bank reaffirmed its continued support to Bangladesh to achieve the country’s vision of reaching an upper-middle income status through ensuring green growth, as the Bank’s Chief Executive Officer Kristalina Georgieva concluded a two-day visit to the country.
As a co-chair of the Third Executive Meeting of the Global Commission on Adaptation (GCA) that took place in Dhaka on July 10, Georgieva commended Bangladesh for its leading role in adaptation and disaster preparedness, despite being among the countries most vulnerable to climate change.
“The world can learn from Bangladesh’s adaptation and strong disaster-coping mechanisms. Their approach is working when we compare recent and past natural disasters: Cyclone Bhola in 1970 killed half a million people while last May Cyclone Fani, of similar strength caused less than 10,” said Georgieva. “But climate change will make the threat of natural disasters more frequent and intense. The World Bank remains committed to help Bangladesh improve resilience and ensure climate-smart growth.”
For Bangladesh, dealing with climate change is a development priority.With active community participation, the country has improved defensive measures, including early warning systems, cyclone shelters that double up as schools, evacuation plans, coastal embankments, reforestation schemes and increased awareness and communication. The World Bank has supported these measures, which have reduced deaths in major storms.
On Wednesday, she met with the Honorable Prime Minister Sheikh Hasina and commended Bangladesh’s remarkable progress in economic development and poverty reduction. They discussed the country’s development priorities, and how the bank can support them.
Today, Georgieva visited a learning center, known as Ananda School that brings poor out-of-school children back to primary education. The World Bank is supporting the government project that enrolled about 690,000 poor and out-of-school children, half of whom are girls, in Ananda Schools, which in Bengali means “school of joy”. To cover the poorest slum children, the project has been expanded to 11 city corporations. In Cox’s Bazar area, the program is providing learning opportunities to Rohingya children and helping the dropped-out youth from the host community.
“I am most impressed with the resilience of the people of Bangladesh and their determination for a better future for their children,” added Georgieva. “This has been the driving force that made Bangladesh become a low-middle income country from being one of the poorest nations at birth only within four decades. The country also showed extreme generosity by providing shelter to about a million Rohingya population. The World Bank stands by Bangladesh in its journey to an upper-middle income status.”
The World Bank was among the first development partners to support Bangladesh following its independence. Since then, the World Bank has committed over $30 billion, mostly in grants and interest-free credits to Bangladesh, supported by the International Development Association (IDA), the World Bank’s arm for the poorest countries. Bangladesh currently has the largest IDA program totaling $12.6 billion.
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