Happier New Year
Executives around the world see
glimmers of hope for the economy, but it depends on what part
of the world you are in.
As Oscar Wilde once noted, “Experience is simply the
name we give our mistakes.” If the mistakes made leading
up to the 2008 global financial meltdown offer any indication,
we can rest assured that our financial and political leaders do
not suffer from lack of experience.
In any event, it’s a brand new year, ample reason for
renewed optimism. According to a global survey by McKinsey,
business executives are more optimistic about the economic
outlook in their respective countries than they were just over
a year ago. Nearly half of those surveyed said they expect the
good news to continue and GDP growth to return to pre-September
2008 levels in 2010 and 2011.
But not so fast. McKinsey points out that optimism varies by
region. Executives in North America were generally more
confident that the crisis would end sooner than their
counterparts in other regions. Executives in developed Asian
countries were the most optimistic, while those Gloomy Gusses
in Europe the least so.
A majority of the executives said economic conditions have
improved since September 2008, but only 19% said the economy
has turned around. That number jumps to 33% among executives in
the developed Asian economies. More executives in that region
than in any other developed area said the best description of
the global economy through the first quarter of 2010 is
“regenerated global momentum.” And everywhere
except Europe, more executives said the economy over the next
several months would be “battered but resilient,”
reflecting a view that we’re on the road to a recovery
that could be long and slow. A third of those surveyed
described the economy as “stalled globalization,”
and 20% said they expected a fairly quick recovery.
We’re not out of the woods yet. Even though the
overall economic news is brighter, the executives were less
optimistic about their own companies’ short-term
prospects. While most expected to see profits in 2009, they did
not see a change in their workforce through at least the first
quarter of 2010.
The biggest obstacle to growth over the next year, the
executives said, is low consumer demand. This finding certainly
reflects what most economists are saying, that low consumer
demand will slow growth. Without consumers buying, companies
won’t increase production and can’t grow. If they
don’t grow, they won’t hire.
The survey also shows that the recovery is uneven across
industries, with some doing better than others. Although nearly
two thirds of all survey respondents said their companies
weren’t in crisis, 45% of those in the manufacturing
industry said they were. That’s in comparison with 28% in
the financial services sector. Also, executives in
manufacturing were more likely to say their companies are
reducing the workforce and expecting lower profits than any
other industry executives. According to McKinsey, a new normal
is settling in—an environment that will be less
“comfortable” for business than the pre-crisis
Glimmers of hope are on the horizon. The executives are more
optimistic about their companies’ long-term prospects.
The survey showed that for the first time in a year some
companies are beginning to shift out of “survival”
mode and are again planning for the future. Last year companies
hunkered down and focused on cutting costs and reducing
inventory, capital investment and workforce. Now, product
development and long-term planning are high on the priority
list of many businesses.
Nearly three quarters expect their companies to be stronger
in five years than they were before the economy collapsed. Even
though many continue to cut back, fewer see it as a top
priority. An equal number of executives reported that their
companies are restructuring to position themselves for growth
and to reduce costs.
The executives also see major changes coming for their
industries and economies over the next five years. And
executives believe government will play a bigger role in both.
The executives are still looking to government for assurance.
Across industries, the executives said government should
continue supporting the economy albeit at a scaled-back
Other changes include more consolidation and innovation in
their industries. Those who expect to be stronger in the future
more often said they are focusing on flexibility, new products
and long-term planning. They also said they expect their
industry to consolidate. For better or worse, the crisis has
helped wean out the competition. This should help many
companies strengthen their positions as the economy
Innovation was a major theme in the survey. The majority of
executives said innovation is more important for growth than it
was before the crisis.
In other good news, the executives believe that
globalization and international trade will expand. At the
height of the crisis, countries restricted trade in an effort
to protect local markets. That trend seems to be reversing. In
the next five years, the executives said, they also expect to
see more integration in financial markets.
Here’s to a happier new year in 2010 than we had in
Kemper is The Council’s vice president of Industry