Respondents’ views on economic conditions and growth prospects have tempered. Meanwhile, trade-related changes have become ever more pressing risks to domestic, global, and company growth.
Midway through 2018, respondents around the world express more cautious views than they did in March about the state of the economy and its prospects for the rest of the year. In McKinsey’s most recent survey of executives’ sentiment on economic conditions,1 the shares of respondents who say overall conditions are improving and predict that the rate of economic growth will increase are smaller than in the past few surveys. There are some geographic divides, but in contrast to the previous survey’s results, these differences do not fall along developed- or emerging-economy lines. Instead, respondents in Latin America report particularly downbeat views, while their peers in North America and India are the most positive about current conditions at home and in the world economy.
Changes in trade policy remain the most cited risk to domestic and global growth, and respondents are increasingly likely to identify the issue as a risk to their companies. Compared with the past three surveys, respondents are less likely to report increases in trade levels between their countries and the rest of the world or that their companies have seen a positive business benefit from changing trade levels. Overall, respondents remain optimistic about their companies’ prospects, including the size of their workforces, but they also report significant effects on the workforce—past and expected—from technology-related trends.
Tempered views on the economy
Respondents’ opinions on economic conditions and prospects for growth, both global and domestic, are more cautious than they have been in several surveys. Forty % of respondents—down from 54 % and 60 %, respectively, in the past two surveys—say the global economy is in better shape now than six months ago.
What’s more, expectations of the world economy’s prospects have declined (Exhibit 1). The share of respondents that predict global conditions will worsen now exceeds the share predicting improvements, for the first time since December 2016. Likewise, their views on global growth rates also have become more tempered. Respondents are more than twice as likely as they were six months ago (32 %, up from 14 %) to predict that the rate of global growth will slow in the next six months—though a majority still expect an increase. One exception is in Europe, where just 43 % of respondents, compared with 55 % of all others, believe the global growth rate will increase.
As to their home economies, respondents remain on the optimistic side—although for the first time in a year, less than a majority say economic conditions have improved in recent months. Those in North America and in India are the most upbeat across regions, and those in Latin America are the least so (Exhibit 2). Only 27 % in Latin America cite improvements, compared with 52 % who report declines—a dramatic change from three months ago, when respondents in the region were among the most optimistic.2
Looking ahead, the outlook on respondents’ home economies is even more cautious. Compared with previous surveys, they are more likely now to expect their countries’ growth rates will contract. At the same time, just 38 % predict that domestic conditions will improve over the next few months, down from 47 % in March and 49 % in December 2017. Respondents in Latin America and Europe are the least likely across regions to expect improvements, and much less likely than they were in the previous survey (Exhibit 3).
Trade-related concerns persist
For the second survey in a row, changing trade policy is cited most often as a threat to global economic growth. Changes in trade policy are cited by 64 % (Exhibit 4), up from 56 % previously and twice the share that said so one year ago. Trade-policy changes are the most commonly cited risk in all regions and by respondents in both developed and emerging economies. A related risk, changing levels of global trade, is identified by 27 % of respondents. It is now the third most common threat; in March, it was cited sixth.
As a risk to domestic growth, trade-policy changes also continue their climb and have overtaken political issues—that is, domestic political conflicts and transitions of political leadership—as the most commonly cited risk. As in the previous survey, changing trade policy is an outsize concern in North America. In this survey, so are domestic political conflicts, which are cited more often than average in India, Latin America, and North America.
Furthermore, after a year of increasingly positive views about trade levels between respondents’ countries and the rest of the world, sentiment has taken a downward turn. A plurality of respondents continue to report that trade levels have increased in the past year. But, the share saying so now is smaller than in the past three surveys, and their predictions of future trade levels are increasingly pessimistic (Exhibit 5). Forty-one percent of respondents expect trade levels will decline in the next year, the largest share to say so since we first asked this question in December 2016. Now, respondents are more likely to expect declining rather than increasing trade.
Even respondents in emerging economies are less enthusiastic about trade than they’ve been in past surveys. Three months ago, 60 % of these respondents said trade between their own countries and others had increased, compared with 49 % of their developed-economy peers. But in the newest survey, that gap has narrowed: 45 % in emerging economies and 40 % in developed economies report increasing trade levels. Looking ahead, those in North America—who are also the most likely to cite trade-policy changes as a threat to domestic growth—remain the most downbeat about their countries’ trade prospects, and increasingly so.3
Shifting tides at the company level
Trade-related changes have implications for companies, too, and the latest results suggest that these effects are evolving. Changes in the trade environment continue to rise as a risk to company-level growth: they are now cited third (formerly, fifth) most often by respondents. And, while most respondents’ companies tend to be immune from shifting trade levels at the country level, a growing share say the effects on their business have been negative: 22 % say so now, up from 17 % and 14 % in the past two surveys. Respondents in developed Asia are the most upbeat about the business effects: 52 % report a positive effect from changing trade levels. Conversely, their peers in Latin America and North America are the least likely—and much less likely than the global average—to report business benefits. In fact, respondents in the Americas are warier now of trade’s effects than theyhave been in recent months (Exhibit 6).
Still, respondents in these—and all—regions expect no meaningful hits to their business in the near term. Overall expectations for profits and demand remain high: 58 % of respondents in Latin America and 68 % in North America (compared with 62 % of the global average) predict that their companies’ profits will increase in the next six months.
While expectations for workforce size are holding steady and remain more positive than negative,4 other results suggest that major workforce changes—thanks to technology—are already under way. Seven in ten respondents say that in the past five years, advances in digitization and/or automation have affected some portion of their companies’ workforce (that is, created a need for retraining or replacement), and respondents from larger companies report an even greater effect to date.5 Looking ahead to the next five years, nearly all respondents (94 %) expect technology-related skill gaps will emerge.
Few companies are ready to handle these skill gaps, though. Thirty-nine % of respondents say their companies are unprepared to deal with skill issues, and only one-third say addressing these gaps is a top or top five priority for their organizations. The biggest barrier to doing so, respondents say, is their current human-resources infrastructure, which is not able to support a new strategy for addressing these gaps. Finally, the results suggest that these workforce changes are a universal issue. Across regions, respondents in emerging and developed economies report similar experiences and views on the effects of automation and digitization on their workforces, the extent to which their companies are—or are not—prioritizing potential skill gaps related to technology trends, and their preparedness to address these gaps.
The contributors to the development and analysis of this survey include Sven Smit, a senior partner in McKinsey’s Amsterdam office.
He wishes to thank Alan FitzGerald and Vivien Singer for their contributions to this article.