McKinsey: Economic Conditions Snapshot, March 2018

McKinsey has just released it’s latest Economic Outlook report. Some highlights of what is always a must-read:


Respondents around the world are sanguine about the current state of the global economy and their economies at home, according to McKinsey’s newest survey on economic conditions.1But as they look ahead, they are less likely to expect global improvements, and their views divide along regional lines. Respondents in developed economies report a much more guarded outlook on their own economies, the world economy as a whole, and their trade prospects, relative to their peers in emerging economies. In particular, those in North America are more likely than others to expect declining economic conditions and trade levels, as well as changes in trade policy.

Overall, the results underline the central role that the United States plays in respondents’ thinking about growth prospects. When respondents were asked which countries will provide their companies with the biggest growth opportunities in the next year, they most often cite the United States, where interest rates—along with trade policy—have become outsize concerns. In every other region, executives also cite changes in trade policy as a risk to global growth. Since our previous survey, the share saying so has more than doubled, and the issue has also emerged as a growing risk to domestic growth and to the growth of respondents’ companies.


The results also indicate a growing divide between emerging- and developed-economy expectations, at both the country and global levels. Since the last survey, the percentage-point difference between the two groups’ expectations for improving domestic conditions has doubled. Even more striking, the gap between the percentages predicting domestic growth (as opposed to contraction or no change) has tripled. In both cases, the emerging-economy respondents are more likely to be hopeful. Sixty percent in emerging economies believe that domestic conditions will improve, for example, compared with only 40 percent of their developed-economy peers. And while overall positivity on the global economy has declined since December,2respondents in emerging economies are more likely than their peers elsewhere to predict improvements and increasing growth rates in the global economy (Exhibit 2); three months ago, responses from the two groups were roughly aligned.

In the latest survey, trade issues have also emerged as a threat to growth globally, domestically, and at the company level. Changes in trade policy are cited most often on average and in every region as a risk to the global economy’s growth in the next year. Further, the share saying so has more than doubled since December (Exhibit 5). As a risk to domestic growth, changes in trade policy are identified second most often (32 percent select it, up from 21 percent three months ago). And as a risk to their companies’ growth in the year ahead, respondents are twice as likely as in December (26 percent, up from 13 percent) to cite changes in the trade environment.

Even in the midst of trade-related threats, respondents remain enthusiastic about their companies’ prospects. Two-thirds predict their profits will increase in the next six months, as we saw in December, and 58 percent expect demand will increase over that same time. Also consistent with earlier surveys are respondents’ views on the best opportunities for growth. Respondents are most likely, as they have been in the past six surveys, to cite growth in existing markets (38 percent say so) as the biggest opportunity for their companies in the year ahead.

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