economic conditions snapshot september 2015

Executives are more downbeat about the state of the global economy now than at any time this year,

according to McKinsey’s latest survey on economic conditions.1 Recent turmoil in global markets has

fueled concern over the strength of respondents’ home economies—and of the world economy, too.

At the same time, executives cite volatile economic conditions and exchange rates as emerging threats to

both domestic and global growth in the short term.

A majority predict that oil prices will stay low in the next year, which could potentially spur future growth.

It’s unclear, though, how much a growth spurt from oil prices could offset the economic risks posed by

increased volatility. Executives in emerging markets are particularly concerned with volatility at home—

especially in China, where four-fifths of respondents say their economy has worsened in the past six

months. Across regions, the domestic and global economic outlook for the coming months is more tempered.

The same is true of expectations for China’s economy, which most respondents believe will meet (or come

close to) the Chinese government’s 2015 growth target of 7 percent.2

Executives’ views deteriorate amid rising concerns over volatility and expectations for only modest growth in China.

McKinsey Global Survey results

Jean-François Martin

Economic Conditions Snapshot, September 2015

2

Volatility on the riseAs a risk to short-term domestic growth, volatility is cited more often now than in previous surveys. At

home, volatile economic conditions and exchange rates are greater worries for emerging-market

executives, especially in China (Exhibit 1). Forty-nine percent of executives there cite overall economic

volatility as a risk to domestic growth in the next year, compared with 27 percent of other respondents.

Exhibit 1

Survey 2015Economic snapshot, September 2015Exhibit 1 of 6

Increasing volatility is a heightened concern among emerging-market executives—especially those in China.

1 Out of 12 risks that were presented as answer choices.

% of respondents, by office location

Low consumer demand

Increased economic volatility

Increased volatility of exchange rates

Insufficient government-policy support

New asset bubbles

Potential risks to domestic economic growth,1 next 12 months

China, n = 91

All other regions,n = 1,797

49

52

38

31

18

27

34

16

21

32

33

Volatility has also climbed as a threat to global growth in the near term. Forty-eight percent of all

respondents now cite economic volatility as a top risk for the next 12 months, up from 34 percent in June;

32 percent now cite exchange-rate volatility, up from 22 percent. Volatile exchange rates are a much

greater concern for emerging-market executives, who report that since June, geopolitical instability has

fallen as a risk to global growth (Exhibit 2).

When asked about scenarios for growth over the next decade, the largest shares of executives believe that

“global downshift” (low but resilient global growth) and “pockets of growth” (uneven, volatile, but high

levels of global growth) are likeliest to occur. Compared with the previous survey, though, executives are

more likely to identify “rolling regional crises” (volatile and weak global growth): 25 percent now say

it’s the most likely, up from 17 percent in June.

On the exchange-rate front, many executives expect the US dollar will outperform all other currencies in

the next six months. Three-quarters of executives in China and in Latin America3 believe that their

currencies will depreciate against the dollar, and 60 percent of those in the United States say the dollar

will appreciate against the renminbi. A slightly larger share of respondents in the United States

(64 percent) expect the dollar to grow in value against the euro—though just one-third of eurozone

respondents say the same.

Exhibit 2


For emerging-market executives, volatility and low demand have risen as risks to global growth, while geopolitical issues have fallen.

1 Out of 12 risks that were presented as answer choices.

% of respondents working in emerging markets

Potential risks to global economic growth,1 next 12 months

March 2015,n = 654

June 2015,n = 471

Sept 2015,n = 550

Geopolitical instability 72 67 46

Increased economic volatility 42 37 48

Increased volatility of exchange rates

27 26 44

Low consumer demand 26 27 41

New asset bubbles 18 19 20

4

Exhibit 3


Compared with June, executives are roughly three times more likely now to say that global economic conditions have worsened.

1 Figures may not sum to 100%, because of rounding.

% of respondents1

Current conditions, compared with 6 months ago Expected conditions, in 6 months

Global economic conditions

Substantially better Moderately better The same Moderately worse Substantially worse

Sept 2015,n = 1,888

17 20 53 9 26 35 34 4

June 2015,n = 1,452

36 42 20 40 41 17

Mar 2015,n = 2,283

34 40 23 40 40 17

1

1 1

1

11 22

2

Widespread economic worryIn the past four surveys, executives consistently reported modest views of the global economy; they were

most likely to say that current conditions had held steady. But now, respondents in all regions are most

likely to say that the global economy is worse than it was six months ago. Sixty-two percent say economic

conditions have worsened (Exhibit 3)—nearly three times the share that did so in June, making this

the gloomiest respondents have been about the global economy in the short term since June 2012.4 On

average, respondents most often expect conditions to worsen in the coming months as well.

Executives in some regions are more optimistic than others about the global economy’s short-term

prospects. For example, in India, 44 percent expect improved global conditions; 28 percent expect condi-

tions will worsen, compared with roughly half of their peers in Latin America, China, and developed

Asia.5 Still, respondents in India are more than twice as likely now as in June to expect worse conditions.

And overall, emerging-market executives are much gloomier than their peers elsewhere: 76 percent

say the world economy has worsened in the past six months, compared with 56 percent of executives in

developed markets.

5

At the country level, respondents are more downbeat about short-term economic conditions than they’ve

been all year, and concerns are particularly acute in Asia and Latin America (Exhibit 4). In March,

40 percent of executives in China believed that domestic economic conditions would be worse by now. But

in this latest survey, fully 80 percent say conditions have worsened since March.

Executives in China are slightly more optimistic about the future than the present—though they are still

likelier than many other respondents (except those in Latin America) to believe domestic conditions

will worsen in the next six months. Their peers in developed Asia are equally apprehensive: 40 percent

expect worse conditions in the coming months, up from 23 percent in June and 16 percent in March.

This outlook for sluggish growth comes amid ever-lower expectations for oil prices in the next year.

Three months ago, the largest share of executives (45 percent) predicted that oil prices would

be $60 to $80 a barrel. Now the largest share (70 percent) expect that oil will cost between $40 and

$60 a barrel.

Modest prospects for China’s growthGiven the most recent responses from China, it’s not surprising that when asked specifically about the

country’s economy, many executives report a cautious outlook. Forty-nine percent of all respondents

believe that, in the year ahead, a sharp slowdown in China’s economic growth is very or extremely likely to

shock the global economy, up from 23 percent in the previous survey.

Executives in China are more optimistic about the future of their home economy than the present. But for the months ahead, they are still likelier than many other respondents to expect economic conditions at home will worsen.

6

Exhibit 4


Across regions, respondents in China and Latin America are the most downbeat about economic conditions at home.

1 Figures may not sum to 100%, because of rounding. 2 In India, n = 182; in Europe, n = 794; in North America, n = 562; in Asia–Pacific, n = 273; in developing markets, n = 213; in China,

n = 97; and in Latin America, n = 162. 3 In India, n = 154; in Europe, n = 644; in North America, n = 508; in Asia–Pacific, n = 186; in developing markets, n = 189; in China,

n = 91; and in Latin America, n = 116.

% of respondents,1 by office location

Expected conditions, in 6 months (Mar 2015)2

Current conditions, compared with 6 months ago (Sept 2015)3

Domestic economic conditions

Better The same Worse

India 93 7

1

49 2131

Europe 51 2029 48 2230

North America 56 1132 41 2238

Asia–Pacific 64 1621 24 5126

Developing markets

40 2138 20 5921

China 26 4034 9 8011

Latin America 19 5823 5 914

7

Exhibit 5


Executives in North America and Europe are the most likely to expect that GDP growth in China will slow this year.

1 Respondents who answered “don’t know” are not shown, so figures may not sum to 100%.


Expected rate of GDP growth in China, 2015

<4% 4%–5% 6%–7% ≥8%

North America, n = 508

3414 47

1

Europe, n = 644

339 53

1

India, n = 154

183 76

1

Developing markets, n = 189

249 64 2

Asia–Pacific, n = 186

272 70

China, n = 91

132 84

Latin America, n = 116

224 74

We also asked about the expected rate of GDP growth in China, and most respondents predict that

the country will meet or come close to its 2015 growth target of 7 percent. Executives in some regions—

Europe and North America, specifically—are more likely than others to expect modest (and slowing)

Chinese growth (Exhibit 5). Looking further ahead, to 2018, respondents are less optimistic. Nearly two-

thirds of all respondents (and 59 percent in China) believe that three years from now, the annual rate

of growth will be 5 percent or less.

8

Exhibit 6


Executives in China are less concerned than all others about a sharp slowdown there, both in the next year and the next decade.

1 Respondents who answered “don’t know” are not shown, so figures may not sum to 100%.


Likelihood of sharp slowdown in China’s economic growth

Over the next 12 months

26 257 41 37 713 41

29 2311 37 39 914 36Over the next 10 years

China, n = 91

All other regions,n = 1,797

Extremely likely Very likely Somewhat likely Not at all likely

Compared with their peers, executives in China are less worried about slowing growth. Just one-third say

a sharp slowdown in Chinese growth is very or extremely likely over the next year, and 40 percent say

the same about the next decade (Exhibit 6). Those in China are also more optimistic than others about the

rate of GDP growth: 84 percent say the economy will grow 6 to 7 percent this year. Just 15 percent—

compared with 39 percent of all other respondents—say the growth rate will be 5 percent or less.

At the same time, executives in China note concerns at the company level. They are more concerned than

their peers elsewhere that demand for their companies’ products and services will decrease in the next

six months. And along with executives in Latin America, they are the most likely to expect their companies’

profits will decrease.

1 The online survey was in the field from August 31 to September 4, 2015, and garnered responses from 1,888 executives representing the full range of regions, industries, company sizes, functional specialties, and tenures. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP.

2 On March 5, 2015, at an annual parliamentary meeting, China Premier Li Keqiang announced a 7-percent target for 2015 GDP growth in China.

3 Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Peru, Uruguay, and Venezuela.4 “Economic Conditions Snapshot, June 2012: McKinsey Global Survey results,” June 2012, mckinsey.com.5 Australia, Hong Kong, Japan, New Zealand, the Philippines, Singapore, South Korea, and Taiwan.

Copyright © 2015 McKinsey & Company. All rights reserved.

economic conditions snapshot september 2015

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