Almost three-quarters (73 per cent) of the chief executives of the world's leading companies expect global economic growth to decline this year, according to the latest Global CEO Survey by PwC.
Revealed at the World Economic Forum's annual meeting Davos, the PwC survey is the gloomiest since the accountancy and business services firm began it more than 10 years ago.
In 2021 and 2022, more than 75 per cent the chief executives surveyed thought the global economy would improve.
Adapt or die
The survey of 4,410 chief executives in 105 countries also found that 39 per cent of bosses think that without significant changes to the current course of the businesses, they will no longer be viable within a decade.
"It is both the timeframe and magnitude that is surprising - how do I survive the next two to three years, and make my way through a challenging macroeconomic environment, while transforming my organisation to be fit for growth over the next 10 years," said Bob Moritz, global chairman of PwC.
Meanwhile, inflation, macroeconomic volatility and geopolitical concerns were foremost in chief executives' minds, prompting them to maximise revenues through cost cutting, price raising and diversification.
"A volatile economy, decades-high inflation, and geopolitical conflict have contributed to a level of CEO pessimism not seen in over a decade," Mr Moritz said.
The chief executives were concerned about the continuing viability of supply chains, the effects of the war in Ukraine, cyber security and expanding their offerings into new areas.
Worker power
However, 60 per cent of respondents said they had no intention of shrinking their workforces this year and the vast majority (80 per cent) said they would not be reducing workers' wages.
“Power remains with workers who have the right skills,” Mr Moritz said.
When asked about what was likely to affect the ability of their industry to make profits, about half cited changing customer tastes, regulatory changes, skills shortages and technology disruption. About 40 per cent said transitioning to a new energy source and supply issues.
"You're starting to see some differentiation, in terms of those (firms) that have a debt-driven balance sheet that will struggle while dealing with rising interest rates and inflationary pressures, versus those that have done a good job managing down debt and have the capacity to transform their portfolios," Mr Moritz said.
When it came to concerns over the global economy compared with their own national economies, business executives in France, Germany and the UK were less optimistic about domestic growth than global growth. That attitude was the opposite in the cases of the US, Brazil, India and China.
Reasons to be cheerful
But even though the CEO Survey was described as the most pessimistic for 10 years and that it tallied with a separate survey by the WEF showing two-thirds of business leaders expected a global recession in 2023, Mr Moritz said there are reasons to be cheerful.
"I do think you've got a world where the economic environment is much different than, for example, 2008-2009. That was a big shock to the system; everyone was concerned and that pessimisim was evident there. The degree of confidence that the CEOs can manage through that is much better now than it was in 2009," he said.
"Second, many of the things we're talking about are known. It's a question now of 'what do I do about them?' as opposed to trying to figure out the unknown ones."
"The third thing I would say which is a positive, is that the corporations and their c-suites and management teams are very much focused around this social impact and particularly around the employee base and the labour force — to have them consciously make decisions saying 'I don't want to do a large scale reduction' is much different than we've been in other recessions."
The biog
Year of birth: 1988
Place of birth: Baghdad
Education: PhD student and co-researcher at Greifswald University, Germany
Hobbies: Ping Pong, swimming, reading
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The specs: 2018 Nissan Altima
Price, base / as tested: Dh78,000 / Dh97,650
Engine: 2.5-litre in-line four-cylinder
Power: 182hp @ 6,000rpm
Torque: 244Nm @ 4,000rpm
Transmission: Continuously variable tranmission
Fuel consumption, combined: 7.6L / 100km
UAE currency: the story behind the money in your pockets
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