Economic Conditions Snapshot - Nov. 2009

McKinsey Global Survey results:

Economic Conditions Snapshot, November 2009 Executives’ optimism about the economy continues to climb, especially in emerging markets and in developed economies in Asia. Executives are a little less sure about their companies’ prospects and say low consumer demand is the biggest barrier to growth.

For the first time in a year, a majority of respondents—51 percent—say economic conditions in their countries are better now than they were in September 2008, according to a survey in the field during the last week of October, a volatile week for stock markets.1 A larger share of executives also expects the good news to continue, with 47 percent expecting GDP growth to return to pre–September 2008 levels in 2010 or 2011, compared with 40 percent six weeks ago. Although the global news is good, there are marked regional differences; executives in the developed countries of Asia2 are generally the most optimistic, and those in Europe are the least.

1 The online survey was in the field from October 27, 2009, to October 30, 2009, and garnered 1,698 responses from executives representing the full range of industries, regions, functional specialties, and titles. 2 Includes Australia, Hong Kong, Japan, New Zealand, the Philippines, Singapore, and Taiwan.

However, a majority of executives around the world share the prevailing skepticism about consumers: when asked to name the biggest threat to future economic growth and to the growth of their own companies, more cite low consumer demand than anything else. Ineffective government regulation is the next biggest economic concern, respondents indicate, followed by losing business to low-cost competitors. Looking ahead, respondents’ views on company profits and workforce size haven’t meaningfully changed in the past six weeks. Pluralities still expect increased profits in 2009 and no change in their workforces through the first quarter of 2010. Here, too, however, there are notable regional differences.

Jean-François Martin

2

McKinsey Global Survey results

Economic Conditions Snapshot, November 2009

Where economic optimism is highest

Although 51 percent of all respondents say economic conditions are better than they were last September (Exhibit 1), only 19 percent say an upturn has begun. This figure rises to a remarkable 33 percent, however, among respondents in Asia’s developed countries. And about a quarter of those—more than in any other developed region—also say the best way to describe the global economy through the end of the first quarter of 2010 is “regenerated global momentum” (Exhibit 2).

Everywhere except Europe, more executives describe the economy Survey 2009 Economic November over the next several monthsconditions as “battered but2009 resilient” than say it is frozen, Exhibit 1 of 6 stalled, or regenerated. Glance: Exhibit title: Steady improvement

Exhibit 1

Steady improvement % of respondents1

Substantially worse

Moderately worse

How are current economic conditions in your country compared with conditions in early September 2008? Oct 2009 n = 1,698

11

22

16

45

The same

Moderately better

Substantially better

How do you expect your country’s economy to be at the end of the first quarter of 2010? 2 1

6

10

25

Survey 2009 Sep 2009 18 34 3 12 14 30 4 n = 1,677 Economic conditions November 2009 1 Figures may not sum to 100%, because of rounding. Exhibit 2 of 6 2In September 2009, the question was asked in terms of expectations at the end of 2009. Glance: Exhibit title: More momentum in Asia

57

25

7

55

6

Exhibit 2

More momentum in Asia % of respondents who ranked given scenario no. 1 By region Total n = 1,659 Battered but resilient

Long freeze 1 Includes

India n = 146

39

Stalled globalization Regenerated global momentum

North America n = 541 46

33 19 10

42

31

Latin America; excludes China and India.

37 4

Asia-Pacific n = 185

China n = 93

38

16

14 9

Developing markets1 n = 155

8

37

37

28

24

28

25

27

26

13

Europe n = 539

8

32 39 18 11

3

McKinsey Global Survey results

Economic Conditions Snapshot, November 2009

Respondents identify several potential stumbling blocks to economic growth, most often low consumer demand (Exhibit 3). Other potential barriers to growth vary by whether respondents expect their nations’ GDPs to increase or decrease. In countries where executives Survey 2009 expect an increase in GDP, more are also worried about currency values and inflation; conditions in countries where executives expect a decrease, they are notably more concerned Economic November 2009 about ineffective regulation. Exhibit 3 of 6 Glance: Exhibit title: Threats to growth Exhibit 3

Threats to growth % of respondents,1 n = 1,698 Biggest barriers or risks to country’s economic growth over the next 12 months Low consumer demand

59

Higher interest rates

Ineffective government regulation

28

Insufficient support from government

Low manufacturing activity

28

Low servicesector activity

Currency values

27

Other

Low levels of innovation Loss of business activity to lower-cost countries

1 Respondents

23 20

who answered “don’t know” are not shown.

No particular risk

15 13 11 19 1

4

McKinsey Global Survey results

Economic Conditions Snapshot, November 2009

Status quo for companies

Executives’ hopes for their companies haven’t risen in tandem with their economic expectations. Compared with six weeks ago, nearly identical shares expect increased profits in 2009 (44 percent) and plan to maintain their workforces at their current sizes over the next few months (46 percent). However, there are significant differences in the profit expectations of executives in different regions and industries (Exhibit 4). These are largely parallel to respondents’ economic expectations. For example, among respondents in developed economies, more in Asia than Survey 2009elsewhere foresee an increase in profits. Economic conditions November 2009 Exhibit 4 of 6 Glance: Exhibit title: Mixed expectations on profits Exhibit 4

Mixed expectations on profits % of respondents,1 n = 1,583 Expected change in profit by the end of 2009, compared with 2008 By industry Total

High tech/ telecom 44

Increase No change

Professional services

52

11

49

10 41

Decrease

Financial

12 32

Manufacturing

42 12

37 7

36

43

52

By region India

China 66

Increase No change Decrease 1 Respondents 2Includes

Asia-Pacific

6

65 8

19

59 4

23

Developing markets2

North America 49

8 34

Europe 44

12 39

36 13

40

who answered “don’t know” are not shown; question was not asked of respondents in the public sector. Latin America; excludes China and India.

48

5

McKinsey Global Survey results

Economic Conditions Snapshot, November 2009

Looking ahead through the next 12 months, more than half of respondents expect their companies to continue cutting costs (although this percentage is far lower than the share Survey 2009of companies that have already done so). Half of all respondents expect their companies to focus on productivity growth and the introduction of new products Economic conditions November 2009 or services—far more than have done so over the past year. However, executives are Exhibit 5 of 6 Glance: Exhibit title: Worried about customer spending Exhibit 5

Worried about customer spending % of respondents,1 n = 1,583 Biggest barriers or risks to company’s growth over the next 12 months

By expected change in profits in 2009, compared with 2008 Total

Increase

Low customer demand for our products or services

No change

52

Loss of business to lower-cost competitors

41

34

Decrease 46

32

66

33

36

Competition from new entrants to our sector

21

Low levels of innovation

19

20

Currency values

17

19

14

16

Ineffective government regulation

16

19

11

15

Inability to get needed funding

15

12

Consolidation in our sector

14

13

9

25

20

17

9

21

21

16 17

Insufficient support from government

8

10

8

8

Higher interest rates

8

10

6

8

Other

8

8

6

8

No particular barriers or risks 1 Respondents

4

4

4

2

who answered “don’t know” are not shown; question was not asked of respondents in the public sector.

worried about customer spending: 52 percent cite low demand as the biggest barrier to their companies’ growth, and a third fear losing business to lower-cost competitors (Exhibit 5). Some concerns vary by profit expectations, but not as many as might be expected. A low level of innovation, for example, is important to almost equal shares of executives at companies expecting higher and lower profits. Copyright © 2009 McKinsey & Company. All rights reserved.