Economic Conditions Snapshot, December 2020
Executives’ views on the economy continue to brighten as they look ahead to 2021.
In our latest McKinsey Global Survey on the economy,1 executives are ending a year of global crisis and profound uncertainty on a relatively positive note. Their views on current economic conditions continue to improve, and their predictions for the future—and for their own companies’ prospects—remain much more optimistic than not. Executives in Europe, North America, and developing markets2 report more acute concerns than others about the economy, and those in Europe remain especially worried about unemployment. But even these respondents are less downbeat than they were in the previous quarter.
When asked about potential economic risks in the next year, respondents most often name the COVID-19 pandemic as a threat to global and country-level growth. For their companies, respondents cite industry-wide competition and disruptions as growing risks in 2021.
Overall improvements in economic sentiment, with some regional unease
In the latest survey, executives’ sentiment about their own economies continues to improve: half of all respondents say conditions at home are better now than six months ago, up from 30 percent in September and 11 percent in June. Across geographies, those in Greater China3 remain the most positive (as they have been since June), and respondents in every other region more often report improvements than did in the previous quarter (Exhibit 1).
The upturn is most dramatic in India, where three-quarters of respondents report improvements—up from 19 percent three months ago. At the same time, executives in Europe, North America, and developing markets are more downbeat than the rest. Europe and developing markets are the only regions where respondents are much more likely to report worse than improved conditions. With respect to the world economy, executives’ views are the most sanguine they’ve been in 2020. For the first time this year, respondents are more likely to report improvements than declines (Exhibit 2), and they are much more likely now than in earlier surveys to say conditions have stabilized.
As we saw in the previous quarter, emerging-market executives remain more positive than their developed-economy peers about the global economy. In emerging markets,4 respondents are more than twice as likely to report improved global conditions as declines (58 percent, versus 26 percent), while in developed economies, a larger share of respondents report worse conditions (40 percent) than improvements (34 percent) in the world economy.
A brighter outlook for 2021
Looking ahead to next year, respondents’ economic expectations are increasingly positive: 63 percent say their countries’ economies will be better six months from now, up from 54 percent who said the same in mid-October. Across regions, respondents in Greater China and India are the most positive, as they were in the past three surveys. Even in Europe and North America, where respondents are not as upbeat as their peers about current economic conditions, majorities of executives predict that conditions at home will improve in the next six months.
Meanwhile, the global outlook has bounced back. After some peaks and valleys in recent surveys, 61 percent of respondents now predict global conditions will improve in the months ahead (Exhibit 3). What’s more, respondents are the likeliest they have been in the last three years to expect the global economy’s growth rate will increase. Sixty-eight percent predict increasing growth now, with only 24 percent predicting a contraction—the smallest share to say so all year.
Executives also remain optimistic, and increasingly so, about their companies’ prospects. For the first time this year, respondents are more likely to say the size of their workforces will increase than to predict a decrease (Exhibit 4). Thirty-four percent predict a growth in workforce size, up from 29 percent in September and 19 percent in June.
Expectations for growth are most likely in every region except for developing markets and for Europe, where executives report broader employment concerns. Respondents’ overall expectations for unemployment have tempered since the last two quarters; for the first time since March, respondents are more likely to expect a steady or declining unemployment rate in their home countries than to predict an increase. However, 63 percent of executives in Europe say their countries’ unemployment rates are likely to increase over the next six months, compared with just 41 percent of respondents in the rest of the world.
Interestingly, amid the rising positivity in other results, respondents’ views on nine crisis-related economic scenarios are holding fairly steady over time.5 As in the previous survey, scenario A1 (characterized by localized recurrences of the virus and partially effective economic-policy responses) is cited most often as the likely scenario for the global economy and for respondents’ own economies. This is true even in Europe and North America, where respondents report more negative overall sentiment than their peers.
That said, the share of executives selecting A1 as the most likely global scenario has declined in the latest survey. One-quarter of all respondents now identify it as most likely, down from the 31 to 36 percent who have said so since our April 2020 survey. After A1, the largest share of respondents cite B1 as the most likely global scenario (20 percent), then B2 (cited by 16 percent). (For more information on each scenario, see “Nine scenarios for the COVID-19 economy.”)
The risks ahead
When asked about macroeconomic threats to growth in the next year, the COVID-19 pandemic remains atop the list for country-level and global economic growth. The pandemic is now identified more often as a risk to country growth than it was in the September and June surveys (now cited by 51 percent, up from 43 percent and 46 percent, respectively). It is followed by rising national debt and decreasing demand (tied at 23 percent). At the same time, social unrest has fallen out of the top-five risks, where it was in the past two quarters.
McKinsey’s original survey research
While COVID-19 is cited most often across regions as a threat to respondents’ home economies, the number-two risks vary. Executives in Asia–Pacific and Europe cite decreasing demand second most often. In North America and Latin America, domestic political conflicts follow the pandemic. The number-two threat in Greater China and India is inflation, and in other developing markets, it is geopolitical instability.
Responses to our latest survey also suggest some shifts in the top risks to growth at respondents’ own companies (Exhibit 5). Weakening demand and changing customer needs remain the top-two risks, as they have been in the previous four surveys. But the share of respondents citing demand concerns is the lowest it has been since March, and concerns over geopolitical instability and financial-market volatility are selected less often than in October. At the same time, industry competition has risen in the ranks: it’s now selected fourth most often, compared with ninth in October. Competition and another industry-wide issue, business-model disruptions within respondents’ sectors, together are now cited by 44 percent of respondents, up from 34 percent previously.
Download Economic Conditions Snapshot, December 2020: McKinsey Global Survey results (PDF–894 KB).
About the author(s)
The survey content and analysis were developed by Alan FitzGerald, a director of client capabilities in McKinsey’s New York office; Vivien Singer, a capabilities and insights expert at the Waltham Client Capabilities Hub; and Sven Smit, a cochair and director of the McKinsey Global Institute and a senior partner in the Amsterdam office.
This article was edited by Daniella Seiler, an editor in the New York office.
Economic Conditions Snapshot, September 2020
Executives are more hopeful about the economy—and their own companies’ performance—than they have been since the COVID-19 crisis began. Yet, operational and employment challenges remain.
Six months after WHO declared COVID-19 to be a global pandemic,6 the responses to our latest McKinsey Global Survey on economic sentiment suggest a shift toward optimism.7 Executives are about three times more likely than in June to say economic conditions have improved at home and globally, though roughly six in ten respondents describe the economy as worse now than it was six months ago. The mood is especially positive in Greater China, where the share of respondents reporting improved domestic conditions has grown dramatically since June.
Likewise, executives’ expectations for the economy’s prospects, and for demand and profitability at their companies, are increasingly upbeat. For the first time this year, majorities of respondents predict that both demand and profits will increase in the months ahead. Even so, respondents are equally likely to expect their workforces will shrink as they are to predict growth. Most predict that the unemployment rates in their countries will continue to increase, and they report that their companies are resuming operations more slowly than they expected back in June.
The results also suggest changing views about COVID-19’s impact on GDP, at least close to home. When asked which of the nine COVID-19-related scenarios is most likely, respondents continue to pick the same scenario for the global economy as they have since the spring: A1, characterized by partially effective policy and public-health responses and a yearslong economic recovery. But for their own economies, respondents now select a scenario that involves virus containment, sector damage, and a lower growth rate over the long term (B1) most often.
Positive shifts in economic sentiment
While most executives still say the economy has worsened in the past six months, the latest responses suggest that moods are shifting—and in a more positive direction. They are roughly three times more likely than in June to say conditions in their home countries and in the global economy are better now than six months ago (Exhibit 1).
By geography, respondents in Greater China remain the most positive about their home economies, with an overwhelming 86 percent reporting improved conditions. And even there respondents report a huge jump since June, when 47 percent said the same. After Greater China, respondents in North America (26 percent) and developing markets,8 including the Middle East and North Africa (24 percent), are the most likely to report improvements.
On the global economy, the results also suggest that executives in emerging economies are increasingly positive compared with their developed-economy peers (Exhibit 2).9 In emerging economies, 44 percent of respondents say global conditions have improved in recent months—twice the share in developed economies who say the same, and a bigger gap between the two groups than we saw in June and in March.
We see even more positivity in respondents’ expectations for the future. More than half say economic conditions in their own economies will be better six months from now, while 30 percent say they’ll worsen. It’s the smallest share all year to expect declining conditions. And except for developing markets, respondents in every region are more likely to predict that conditions will improve than that conditions will worsen (Exhibit 3). This is even true of those in North America where, between June and July, respondents’ outlooks took a negative turn.
The share of respondents predicting improvements in the global economy has also grown over the past few months (Exhibit 4). Now 57 percent say so, compared with 52 percent in June and 25 percent in March.
Again, emerging-economy respondents report more positive views on the global economy than their peers. Seventy-three percent expect global conditions to improve in the next six months, compared with 49 percent in developed economies—a much greater gap than previous surveys this year, when executives reported more similar views.
Amid high corporate expectations, there’s still work to be done at the company level
Since COVID-19 was declared a global pandemic, executives have reported an increasingly upbeat outlook for their companies’ profits and demand for their offerings—a trend that continues in the latest survey. For the first time in 2020, majorities of respondents expect their companies’ profits and demand for their offerings will increase in the next six months. When asked about the timeline for their companies’ return to full operations, a growing share (17 percent, up from 12 percent in June) say they are working at full capacity again.
At the same time, companies that are not yet at full capacity appear to be resuming operations more slowly than expected back in June (Exhibit 5). Respondents are more likely now than in June to predict a timeline of 13 months or more to become fully operational again (31 percent, up from 23 percent), even though we are three months further along in time.10
Workforce size and unemployment are also ongoing concerns, according to respondents. Throughout 2020, they have been equally or more likely to say their companies’ workforces will shrink rather than grow. This comes after years of anticipating that increases in workforce size were more likely than decreases (Exhibit 6). In the latest survey, about three in ten respondents expect either an increase or a decline, with the largest share (41 percent) saying head count will hold steady.11
Workforce size is an even bigger worry in developed economies than elsewhere. Respondents in developed economies are more likely than their emerging-economy counterparts to predict a decrease in workforce size (33 percent, compared with 23 percent), whereas in June and in March, they were nearly equally likely to expect a decline.
As we saw three months ago, more than half of all respondents expect the unemployment rates in their countries will increase. By geography, executives in Europe are most likely to say so; 79 percent in that region predict that unemployment will rise in the months ahead.
An evolving view on COVID-19 scenarios
Since we began asking in the spring about nine scenarios for COVID-19’s economic effects, respondents have tended to choose a middle-of-the-road outcome as most likely: scenario A1, in which there are regional recurrences of the virus, a muted recovery, and slower longer-term growth. In the past two surveys, A1 was cited as the likeliest outcome for the global economy and for respondents’ home economies.
While A1 remains likeliest for the global economy, a larger share of respondents now select scenario B1 (virus containment, sector damage, and a lower growth rate over the long term) as a potential global scenario. It’s now ranked first by 21 percent of respondents, up from 13 percent in mid-July and 16 percent in June. In July’s survey, a more pessimistic scenario (B2, in which the virus recurs and economic-policy interventions cannot deliver a full recovery to precrisis levels) followed A1 as second most likely. While B2 is no longer ranked second, a nearly equal share of respondents (19 percent, versus 20 percent in July) now say B2 is most likely for the global economy.
With respect to their home economies, executives now choose B1 as the most likely scenario, replacing A1 in prior surveys. By geography, those in Greater China and in the rest of Asia–Pacific now cite B1 most often (31 percent and 30 percent, respectively, rank it most likely). In Greater China, this is a departure from the past two surveys, where scenario A3 (in which the virus is contained and growth returns) is the likeliest.
Download Economic Conditions Snapshot, September 2020: McKinsey Global Survey results (PDF–425 KB).
About the author(s)
The survey content and analysis were developed by Alan FitzGerald, a director of client capabilities in McKinsey’s New York office; Vivien Singer, a capabilities and insights expert at the Waltham Client Capability Hub; and Sven Smit, a senior partner in the Amsterdam office.
This article was edited by Daniella Seiler, an editor in the New York office.
Economic Conditions Snapshot, June 2020
A new survey confirms COVID-19’s historic effects on the economy and on businesses. While executives report new risks to growth, their overall outlook for the future continues to improve.
Months into the COVID-19 pandemic, which continues to affect a growing number of countries and people,12 the responses to our newest McKinsey Global Survey on economic sentiment confirm the extent of the damage so far.13 Respondents are much likelier now than in March (52 percent, up from 10 percent) to say their countries’ economies have declined substantially in recent months, and more than twice as likely to report substantially worse conditions in the global economy. Across geographies, vast majorities of executives everywhere but Greater China report economic declines in the past six months.14
The survey also asked about changes companies have made in response to COVID-19—or plan to make, if they are not yet fully operational. Among the few executives whose businesses are fully operational or weren’t affected by COVID-19, the workplace changes they report are similar to the ones all other respondents expect to see once operations resume. When asked about the economy’s future, respondents in most regions are increasingly optimistic about economic conditions at home. Of course, new economic threats have emerged. Since the March survey, social unrest has become a greater risk to both global growth and domestic growth, while the coronavirus outbreak is still cited most often. Unemployment is also a growing concern, with much larger shares than in March expecting their countries’ unemployment rates to rise further in the coming months.
COVID-19’s effects to date on the economy
As economies around the world have been struggling to respond to and then recover from the COVID-19 pandemic, the survey results paint a grim picture of its effects. Nearly nine in ten executives say conditions in their home economies are worse now than six months ago, which is the largest share to say so since April 2009, several months after the 2008 financial crisis began.15 Of them, 52 percent report substantially worse conditions, up from 10 percent who said so in March.
Outside of Greater China, where 45 percent of respondents say the economy is worse now—and a nearly equal share say conditions have improved in recent months—between 88 and 98 percent of respondents in every other region say conditions have worsened (Exhibit 1).
When asked about the global economy, the results are equally gloomy (Exhibit 2). Eighty-eight percent of respondents say the global economy is worse now than it was six months ago, compared with 53 percent in December and 59 percent one year ago.
How companies are responding, and their future prospects
With respect to companies, the results confirm that the pandemic’s effects have, of course, been far-reaching. Only 12 percent of respondents say their operations have not been affected by COVID-19, and as of the survey, an additional 11 percent say their companies are fully operational again. What’s more, a shrinking workforce seems increasingly likely: 39 percent expect their workforce size to decline over the next six months (up from 24 percent in March), which is the highest share to say so since April 2009.
At all other companies, respondents are fairly divided on the timeline to a next normal and views vary greatly by industry (Exhibit 3). On average, about one-third say their companies will be fully operational before the end of the year, while an additional 36 percent expect it will take until 2021. Executives in automotive and assembly are the most likely to report some effect on their business, while those in travel, transport, and logistics expect the longest return; over half say it will take until 2021 to be fully operational again. On the other end are respondents in electric power and natural gas, who are the most likely to say they’re already operational or that business activities haven’t decreased since the COVID-19 crisis began.
We also asked about the biggest changes—to date, or expected—once companies are fully operational, and respondents cite the same changes whether or not their businesses are already at that point (Exhibit 4). The most commonly cited changes are a larger share of virtual or remote work, accelerating adoption of business technologies, and the likelihood that digital channels will serve a larger share of customers. But depending on where the company is based, some changes seem likelier than others. For businesses headquartered in developed economies, respondents most often expect virtual or remote work (63 percent, compared with 41 percent at emerging-economy companies) once their businesses are operational again, while those at emerging-economy firms more often cite different M&A and divestment strategies (27 percent, versus 16 percent) and reconfiguring their geographic footprint (24 percent, versus 14 percent).
Unsurprisingly, then, technology and related disruptions figure significantly as risks to as well as opportunities for company growth.16 Weak consumer demand remains the most common risk to company growth. But the share citing business-model disruptions in their industries has increased since the April and May surveys, as has the share citing the fast pace of technological changes.17 With respect to opportunities for growth, the shift to new technologies is cited most often, by 35 percent of respondents, up from 26 percent in March.
And after reporting record pessimism on expected demand and profits two months ago, executives’ outlook on both fronts is tempering (Exhibit 5). Respondents are more likely to expect demand will increase than decrease, while two months ago, the opposite was true. Views on company profits are still more negative than positive, but the share expecting higher profitability continues to grow.
A cautiously optimistic outlook
While executives’ views on the economy’s current state are decidedly downbeat, their outlook for the future continues to improve. Fifty-two percent believe the world economy will be better six months from now, a share that has continued to climb all year and is the highest it’s been since June 2014. One-half of respondents say the same for their home economies; in May, 43 percent said so, up from 36 percent in April and 26 percent in March. Outside of Greater China, Latin America, and India—where respondents’ outlooks have held steady—executives in every other region are more likely than one month ago to expect improvements (Exhibit 6).
When asked about COVID-19’s effects on global GDP, respondents continue to choose two of the more optimistic scenarios, as they did in April and May. Out of nine scenarios, they most often pick A1 (in which public-health and economic-policy interventions are partially effective, and the return to precrisis levels of GDP, income, and corporate earnings will take time) and A3 (a stronger scenario, in which the virus is contained and growth returns slowly to precrisis levels). When asked how these scenarios might play out in their own countries, executives are more positive. The largest share (23 percent) rank A3 as the likeliest outcome for their home economies (Exhibit 7).
Despite the relative optimism, new risks to growth continue to emerge amid COVID-19. The coronavirus outbreak remains the top threat to both global and domestic growth, as it was in March.18 But social unrest has risen in the ranks. As a global risk, it is cited third most often (31 percent, up from 11 percent three months ago) and at the country level it is a top-five risk, cited by 23 percent of all respondents—up from 10 percent previously.
Unemployment is a growing concern as well. Fifty-five percent of executives expect an increase in their home countries in the next six months, up from 44 percent in March and 35 percent in December 2019. In fact, in every region except for North America, a majority of respondents expect their countries’ unemployment rates will increase (Exhibit 8). Worries are especially acute in Latin America and in Europe, where 79 percent and 74 percent, respectively, expect increasing unemployment.
Download Economic Conditions Snapshot, June 2020: McKinsey Global Survey results (PDF–930 KB).
About the author(s)
The survey content and analysis were developed by Alan FitzGerald, a director of client capabilities in McKinsey’s New York office; Vivien Singer, a knowledge expert at the Waltham Client Capability Hub; and Sven Smit, a cochair and director of the McKinsey Global Institute and a senior partner in the Amsterdam office.
This article was edited by Daniella Seiler, an editor in the New York office.
Economic Conditions Snapshot, March 2020
As the coronavirus outbreak unfolded at the beginning of March, the survey elicited sobering early appraisals, with expectations of significant business risks and stifled growth prospects for the months ahead.
In McKinsey’s newest survey on economic conditions, conducted during the first week of March, the coronavirus outbreak overshadowed all other threats to the global economy.19 Nearly nine in ten executives identified the outbreak as a threat to global growth—more than for any other factor. Reflecting on conditions at the time, most respondents said that the outbreak was also a top risk to their national economies and to their companies’ growth over the next year. Since then, the public-health situation has become more dire: the World Health Organization declared the outbreak a pandemic, the global count of confirmed cases and deaths has risen, and authorities in many countries have taken emergency measures to limit the spread of the disease.20
The progression of the outbreak has surely influenced executives’ views on the economy, but even the survey results from several weeks ago indicate the extent of their worries. Respondents already expected a stifled global economy in the months ahead. When asked about their home economies’ prospects, the deepest concerns came from respondents in the Asia–Pacific region—not surprising given the timing and spread of the outbreak.
Furthermore, the results show that many respondents expect their companies to change their globalization strategies and foresee new hurdles to investments. Private-sector respondents were more likely than in previous surveys to say that their companies will alter supply chains in the next few years and that the risk of an economic downturn was keeping their organizations from investing in attractive opportunities. However, a plurality of respondents continued to predict a positive near-term outlook for their companies.
Concerns over the coronavirus outbreak’s impact loom
In early March, most respondents expected the spread of the coronavirus to be one of the biggest risks to growth for the global economy, their national economies, and their organizations in the months ahead. Eighty-six percent of respondents said the outbreak is a pressing threat to global economic growth over the next year (Exhibit 1). Concern about the pandemic, which we first asked about in this quarter’s survey, was most pronounced in the Asia–Pacific region, where 96 percent of respondents said it was a top threat.
Among all respondents, the coronavirus outbreak displaced trade conflicts, respondents’ chief concern throughout 2019, as the most commonly cited risk. Although trade conflicts became the third-most-cited risk overall—after the virus and geopolitical instability—they were an outsize concern in India and other developing markets.21
COVID-19: Implications for business
Looking at their national economies, two-thirds of all respondents said the outbreak is a top risk to growth in the next year. It was the most commonly cited threat in each region except Latin America (Exhibit 2). With all eyes focused on the spread of the virus,22 trade-policy changes (the most-cited risk in the past three surveys) and geopolitical instability were no longer among the top five concerns. Slowing economic activity in China, the initial epicenter of the outbreak, was the second-most-cited risk. Thirty-nine percent said slowing growth in China is a top risk—the largest share since we began asking about it as a threat to domestic growth in March 2016.
Finally, the outbreak topped the list of expected threats to growth at respondents’ companies. Fifty-three percent of all respondents cited it as a risk.
Uneasy views of the global economy and conditions at home
After a more favorable turn at the end of 2019, sentiment on the state of the global economy soured in early March. Just 6 percent of all respondents said conditions improved over the past six months, while 85 percent said they had worsened (Exhibit 3). What’s more, the share reporting a substantial decline in the global economy has grown over the past six months.
Likewise, respondents were leery about the global economy’s prospects. Fifty-eight percent said they expect conditions to decline in the next six months—more than twice the share that predicted an improvement. Overall, three-quarters said they expect the global growth rate to slow down.
Respondents remained more skeptical than hopeful about current and future conditions in their home economies. Overall, 62 percent said their national economies had declined over the past six months, compared with 52 percent six months ago. Respondents in all regions were more likely to report declining than improving conditions, which was also true six months ago. Those in the Asia–Pacific and developing markets were particularly downbeat compared with their peers in other regions (Exhibit 4).
Respondents also offered somber outlooks for their national economies. Roughly half expected conditions to decline in the next six months—nearly twice the share expecting an improvement. Similarly, 58 percent of respondents expected their economies’ growth rates to slow in the months ahead, but most said that the contraction would be minimal.
McKinsey’s original survey research
Across regions, respondents in developed economies were more likely than those in emerging ones to expect worsening conditions. Those in the Asia–Pacific and Europe expressed the most pessimism. Respondents in India and Latin America—who were less likely than those elsewhere to see the virus outbreak as a risk to their economies23—were less somber (Exhibit 5). These sentiments were consistent with the timing and spread of the virus.
Changes to globalization strategies
In light of the economic risks respondents saw in early March, those from large multinational companies said their organizations were examining globalization strategies and would make changes in coming years.24 Eighty-seven percent of respondents said their companies will alter globalization strategies in the next three years. Respondents were more likely than they were in December to say that the strategic changes at their companies will include diversifying supply chains across countries and sourcing more from regional supply chains (Exhibit 6).
In addition, respondents at private-sector companies of all sizes said that the risk of an economic downturn or financial crisis in the countries where their companies are based was affecting how their companies make investment decisions. Respondents were much more likely than they were one year ago to say that a potential downturn is a main reason why their companies are not investing in all attractive opportunities (29 percent, compared with 15 percent in March 2019) or why their companies have fewer attractive investment opportunities than they can fund (37 percent, up from 23 percent).
Even so, at the time the survey was conducted, respondents remained more likely to expect customer demand to increase than to decrease (39 percent versus 28 percent), as has been true for more than a decade. A plurality of respondents also expected their companies’ profits to increase in the months ahead—although the 42 percent of respondents who gave that answer was the smallest share since June 2009.
Download Economic Conditions Snapshot, March 2020: McKinsey Global Survey results (PDF–1.9 MB).
About the author(s)
The contributors to the development and analysis of this survey include Alan FitzGerald, a senior expert in McKinsey’s New York office; Vivien Singer, a specialist in the North American Knowledge Center; and Sven Smit, a senior partner in the Amsterdam office.
This article was edited by Heather Hanselman, an associate editor in the Atlanta office.
