Global Execs Bullish On U.S. – 2016 Views From C-Suite Study by A.T. Kearney

Introduction

Our annual Views from the C-Suite study reflects the collective judgment of 400 C-level executives and board members from around the world on both the opportunities and the challenges in the global business operating environment (see sidebar: About the Study). The survey behind the study is organized into three sections. The first asks executives to determine the likelihood of a variety of discrete potential global developments. The second focuses on business operations, which we define as a firm’s internal processes, people, and systems. The third focuses on the external environment, which we define as economic, political, social, and other external developments that affect businesses. We asked global executives about the opportunities and the challenges they face in both of these areas. Because the time frame of the majority of the questions put to the executives is just 12 months, this study focuses on the constellation of immediate issues absorbing the C-suite’s attention.

This year’s Views from the C-Suite survey was conducted in April 2016. In the headlines at the time—and certainly on the minds of C-suite executives—were, among other things, the leaked “Panama Papers,” the International Monetary Fund’s decision to lower its global growth forecast for 2016 from 3.4 to 3.2 percent, the swelling debate on the economic implications of a potential Brexit, and the continued appeal of Donald Trump and Bernie Sanders in the US presidential primary elections. Other major global events in April included the impending impeachment of Brazilian president Dilma Rousseff, the arrest by Belgian police of the man believed to have played a major role in the Brussels and Paris terrorist attacks, and the failure of OPEC to agree on a production cap. It was clearly a volatile time in the global operating environment, with many competing priorities on the minds of C-suite executives we surveyed.

Assessing the Likelihood of Global Developments

We asked global business executives to evaluate the likelihood of 10 different potential developments that could affect the global business operating environment over the next 12 months, and we found that global executives are deeply divided in their outlook. Six of the 10 possible global developments resulted in a nearly dead-even split (within the margin of error) on the likelihood that they would occur in the next 12 months.3 In contrast to last year’s results, in which global executives’ judgment was conclusive for all 10 developments, this year’s results reflect the uncertainty of the international environment.

Such a dramatic split in outlook suggests that businesses may act with caution in the year ahead, delaying new investment or planned expansions and carefully monitoring developments. For instance, Moody’s recently estimated that the US nonfinancial firms it rates are sitting on about $1.7 trillion in reserves, up 1.8 percent from the previous year.4 Despite this overall uncertainty, there are elements on which executives are more positive, suggesting some cautious optimism. For instance, global executives believe that terrorism is unlikely to increase further in the next 12 months and that the internal pressures in Europe are likely to decrease in the coming year.

We begin by presenting the development that garnered the strongest level of agreement among executives on whether or not it is likely to occur, and we end with the one where opinion is the most divided. Accompanying figures illustrate the distribution across each response on a scale from 1 (certain not to happen) to 10 (certain to happen). The graphs are color-coded red to represent an unfavorable outcome for the global business operating environment, and green to represent a favorable outcome.

Terrorist attacks are likely to decrease

Executives are most aligned on their assessment of the likelihood of terrorist attacks around the world: 59 percent believe an increase in terrorist attacks is unlikely (see figure 1). This is a notable departure from last year, when 82 percent of executives believed an increase in terrorist attacks to be likely. In other words, the percentage of executives concerned about increasing terrorist attacks is just half (41 percent) what it was last year. Perhaps executives believe that after terrorist attacks in Nigeria, Syria, Pakistan, France, Belgium, and elsewhere over the past year, the world has turned a corner in the offense-defense balance against such events.

Global Execs Bullish On U.S. - 2016 Views From C-Suite Study

The European Union will likely begin to strengthen

In a similarly optimistic vein, 57 percent of executives believe that political, economic, and social pressures in the European Union (EU) are likely to decrease over the next 12 months (see figure 2). This sentiment is strongest in the Americas, where 64 percent of respondents hold this view, compared to 52 percent in Europe and 53 percent in Asia. The weaker response from European executives is not surprising given the ongoing migration crisis, the rise of political extremism in the region, and the Brexit vote in the United Kingdom. Overall, however, respondents may feel encouraged by somewhat stronger economic growth, competitive euro exchange rates, and the European Central Bank (ECB) commitment to monetary policy stimulus.

Global Execs Bullish On U.S. - 2016 Views From C-Suite Study

Central banks will likely end negative interest rates and quantitative easing

A slim majority—56 percent—of executives believe that central banks in the main developed markets will normalize monetary policy in the next 12 months (see figure 3). Fully 72 percent of executives in last year’s survey believed that the ECB’s quantitative easing program would successfully revive the eurozone economy. While the jury may still be out on that outcome, it is clear that the US Federal Reserve has begun to restore normal monetary policies. A slight edge in favor of the optimistic camp may reflect confidence that the Federal Reserve will continue raising interest rates in the second half of 2016, and that the ECB and Bank of Japan may then follow suit, thus harmonizing global monetary policy.

Global Execs Bullish On U.S. - 2016 Views From C-Suite Study

Economic and financial volatility will probably lessen

Fifty-five percent of executives believe that economic and financial volatility will be lower in the coming 12 months than over the past year (see figure 4). This is in marked contrast to last year’s survey, in which 82 percent of respondents thought financial volatility would increase over the coming 12-month period. Respondents from the Americas are less confident than the global average this year: only 48 percent believe economic and financial volatility will not increase over the next year. This may be due to the six-month high in US market volatility since August 2015, triggered in part by continued declining oil prices, uncertainty over Federal Reserve monetary policy plans, and China’s currency devaluation and stock market volatility.

Global Execs Bullish On U.S. - 2016 Views From C-Suite Study

Territorial tensions between China and its neighbors are a wild card

Fifty-four percent of survey respondents agree that maritime tensions between China and its neighbors will decrease (see figure 5). Executives based in the Americas are the most optimistic, with 57 percent predicting a decrease in territorial disputes. Perhaps they believe the US “pivot” to Asia—the

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