More than 86 percent of global CEOs anticipate a recession to hit over the next 12 months with 58 percent expecting it to be mild and short, according to KPMG’s recent CEO Outlook report.
The flagship report, which is in its eighth staging, asked more than 1,300 CEOs at some of the world’s largest businesses about their strategies and outlook.
Of the 86 percent of global CEOs expecting a recession to hit, 71 percent predict that it will impact company earnings by up to 10 percent. The report also revealed that while a strong majority of senior executives believe that a recession will disrupt anticipated growth (73 percent), only three-quarters (76 percent) have already taken precautionary steps ahead of a looming recession.
“Companies in the Caribbean are not immune to the issues that face the rest of the world and the report findings run parallel with the realities of many CEOs in the Caribbean. With several senior executives identifying that a recession is among the most urgent priorities today, businesses in the region must start taking preparatory steps to ensure minimal impact, if they haven’t already done so. This is especially critical since the economies across the region are just beginning to bounce back from the brutal effects of the pandemic that forced many businesses to reduce employees and freeze hiring just to stay afloat.” said R. Tarun Handa, Senior Partner, KPMG in Caricom.
“In addition to a recession, the report also highlights that digital transformation and ESG are top priorities for global CEOs, two areas in which the Caribbean region has been playing catch up with the rest of the world,” Handa added
On the matter of recession, the report revealed that senior executives, despite being concerned, also feel markedly more confident about the resilience of the economy over the next six months (73 percent) than they did in February (60 percent), when KPMG surveyed 500 CEOs for its CEO Outlook Pulse survey.
Further, 71 percent of leaders are confident about the global economy's growth prospects over the next three years (up from 60 percent in early 2022) and nearly nine in 10 (85 percent) are confident about their organizations’ growth over the next three years.
Bill Thomas, Global Chairman & CEO, KPMG, said:
“Once-in-a-generation issues — a global pandemic, geopolitical tensions, inflationary pressures and financial difficulties — have come in short succession and taken a toll on the optimism of global CEOs. While it’s unsurprising the economic climate is now a top concern for business leaders, it’s encouraging to see reasonable levels of confidence among executives in their own companies and their longer-term prospects for growth.”
“The events of recent years have created real turbulence for the business community. Our findings should provide some cautious optimism that, in contending with and overcoming these ordeals, executives are more confident in their companies’ resilience and are focused on mitigating some of the very real uncertainties we face today,” Thomas added.
ADDITIONAL FINDINGS:
Hiring freezes and headcount reductions under heavy consideration for CEOs
With continued economic turmoil, there are signs the Great Resignation could be cooling down, with 39 percent of CEOs having already implemented a hiring freeze, and 46 percent considering downsizing their workforce over the next six months. However, the three-year view is more optimistic with only nine percent expecting a further reduced headcount.
Uncertainty fuelling long-term digital transformation
While current uncertainty is driving CEOs to continue to prioritize digital transformation, 40 percent of businesses have paused their digital transformation strategies and another 37 percent plan to take such steps in the next six months.
In the longer-term, more than a quarter believe that advancing digitalization and business connectivity is also vital to achieving growth objectives over the next three years. Seventy-four percent also agree that their organization’s digital and ESG strategic investments are inextricably linked.
Evolving focus toward reputational and technological risks
Emerging and disruptive technology has landed as the top risk to business growth over the next three years. In addition, CEOs have identified several other areas as top risks to growth: reputation, regulatory and operational issues, and climate change.
Reputational risk — such as a misalignment with customer or public sentiment — is raising more concern among CEOs compared to early 2022 (10 percent in August vs. three percent in February). In response to geopolitical challenges, 51 percent of organizations have discontinued working with Russia and 34 percent plan to do so over the next six months.
Information security evolves as a strategic function and cyber-attacks remain a concern
77 percent of CEOs are saying their organization views information security as a strategic function and as a potential source of competitive advantage. Geopolitical uncertainty is also raising concerns of corporate cyber attacks, according to seven of 10 CEOs (73 percent).
Nearly three-quarters of organizations (72 percent) have a plan to handle ransomware attacks. However, more CEOs recognize that they are under-prepared for a cyber-attack with nearly a quarter (24 percent) admitting so in 2022, compared to 13 percent in 2021.
Stakeholder pressure increasing accountability in ESG
When asked what their top challenge in communicating ESG performance to stakeholders was, nearly one-fifth (17 percent) of CEOs indicated it was stakeholder skepticism around greenwashing, up from eight percent in 2021. More than one-third (38 percent) of CEOs say their organizations struggle to articulate a compelling ESG story. Nearly three-quarters of respondents (72 percent) also believe that stakeholder scrutiny of ESG issues — gender equality, climate impacts etc. — will continue to accelerate.
On talent, compared to early 2022, more C-suite executives believe that having the right talent and skills is also key to achieving net zero — or similar — ambitions. Nearly a quarter (22 percent) say a lack of skills and expertise is hindering the implementation of solutions — an increase from 16 percent earlier this year.
Economic pressure slowing ESG ambitions
Global CEOs recognize the importance of ESG initiatives to their businesses, especially when it comes to improving financial performance and driving growth. In fact, 69 percent of senior executives noted greater demand from stakeholders for increased reporting and transparency on ESG — 58 percent in 2021.
Nearly half (45 percent) of CEOs agree that progress on ESG improves corporate financial performance, an increase from 37 percent just 1 year ago. However, as economic uncertainty continues, half are pausing or reconsidering their existing or planned ESG efforts in the next six months, and 34 percent have already done so.