Economic conditions outlook during turbulent times, December 2022
For the third consecutive quarter, executives responding to the latest McKinsey Global Survey on economic conditions remain more wary about the future of the global economy and their countries’ economies than they were at the start of 2022.1 However, respondents are less likely now than in the previous two surveys to report worsening global conditions—or to expect them in the months ahead. They continue to point to geopolitical conflicts and inflation as the most pressing economic risks over the next year, while concerns about rising interest rates grow domestically.
In the latest survey, we also asked about much longer-term risks: potential global forces that might affect organizations over the next 20 years. Respondents say technical innovation and energy and natural resource considerations are the two most likely to affect their organizations, and most say their organizations are taking steps to prepare for each of those factors.
Pessimism over global conditions lessens, but concerns linger
At the outset of 2022, executives were more likely to be positive than negative about current conditions and prospects for the global economy and their countries’ economies. Views became more somber in the June survey. Since June, respondents have become less negative about the global economy. They are much more likely now than in June to report improvement or stable conditions and to expect conditions to improve or stay the same over the next six months (Exhibit 1), though they remain more likely to expect declining than improving conditions.
On the other hand, respondents’ views on their countries’ economies overall remain largely unchanged from the June and September surveys (Exhibit 2). Respondents continue to be about as likely to expect improvement in their economies as they are to expect declining conditions over the coming months. We see just a few notable changes by region. Respondents in North America have grown more likely since June to expect domestic conditions to improve, while the reverse is true among Asia–Pacific respondents.
Continuing concerns about geopolitical conflicts and inflation
Looking at risks to global economic growth over the next 12 months, geopolitical conflicts remain the top-cited risk for the fourth survey, while inflation continues to be the second-most-cited global threat and the top concern domestically (Exhibit 3).
As 2022 comes to an end, the latest survey shows rising interest rates as a growing concern domestically, surpassing concerns over energy price volatility, the second-most commonly cited risk in June and September. Most respondents (63 percent) expect interest rates in their countries to increase over the next six months.
Survey results: Expectations for company performance, by industry
The latest survey shows regional shifts in what respondents see as the main risks to their countries’ growth. Among respondents in Europe, the risk from volatile energy prices reported in September has dropped from the top concern to the third-most-cited risk among respondents in the latest survey, behind inflation and geopolitical instability (Exhibit 4). In Asia–Pacific, as more interest rate hikes hit the market, respondents are now almost twice as likely as in September to cite rising interest rates as a risk. Greater China remains an outlier as the only region in which respondents most often cite the COVID-19 pandemic as a top risk, followed by inflation.2
Preparations to tackle global forces in the coming decades
When thinking about the externalities that might have the greatest effects on organizations over the next 20 years, respondents most often point to technical innovation, followed by energy and natural resource considerations—and, of the potential forces that could affect organizations, those are the two that respondents most often say their organizations are taking significant steps to prepare for (Exhibit 5). The survey also shows some regional differences in organizations’ preparations. Respondents in Greater China, for example, are much more likely than others to say their organizations are taking significant steps to prepare for changes in the world order, such as multipolarity or regionalization, as well as energy and natural resource considerations such as net-zero initiatives. Respondents in Greater China and in other countries in Asia–Pacific are more likely than others to say their organizations are taking significant steps to prepare for financial changes as a result of debt, currency fluctuation, and new growth.
Download Economic conditions outlook during turbulent times, December 2022 (PDF–490 KB).
ABOUT THE AUTHORS
The survey content and analysis were developed by Jeffrey Condon, a senior knowledge expert in McKinsey’s Atlanta office; Krzysztof Kwiatkowski and Vivien Singer, both capabilities and insights experts at the Waltham Client Capabilities Hub; and Sven Smit, the chair and director of the McKinsey Global Institute and a senior partner in the Amsterdam office.
This article was edited by Heather Hanselman, an editor in the Atlanta office.
Economic conditions outlook, September 2022
In stormy weather, survey respondents maintain realism about the global economy. While geopolitical conflicts and inflation remain top of mind, concerns about energy volatility predominate in Europe.
In September, respondents in most regions cite inflation as the main risk to growth in their home economies for the second quarter, according to the latest McKinsey Global Survey on economic conditions.3 Geopolitical instability and conflicts remain a top concern as well, most often cited as the greatest risk to global growth over the next 12 months. Responses assessing the global economy are primarily downbeat, as they were in the last survey. Regional divergence in outlooks has emerged, as respondents in Europe express deeper concerns over energy price volatility and more somber views about their domestic economies. Respondents in North America, on the other hand, were less negative about their countries’ current economies than in the previous survey.
Regional differences also appear when private-sector respondents report on the cost increases that are most affecting their companies. Respondents in Europe most often cite the impact of rising energy prices, while those in India and North America tend to point toward wage increases. Overall, nine out of ten respondents say their companies have seen cost increases in the past six months, and a majority have raised the prices of their products or services. Most also foresee their organizations’ operating expenses increasing in the coming months.
Views on global conditions remain downbeat
After a particularly negative assessment of economic conditions in the June survey, responses to the latest survey are almost as gloomy (Exhibit 1). Looking toward the future, pessimism remains consistent with the previous findings, with about half of respondents expecting global conditions to weaken in the next six months.
Respondents’ takes on the global economy vary significantly by region, however. Those in Europe and North America offer a grim view of both current and future global conditions, whereas those in Greater China4 are primarily positive about the present and the future. Overall, for the third quarter this year, geopolitical instability and conflicts remain the most-cited risk to global economic growth, and inflation remains the second-most-cited threat. In a change from June, volatile energy prices have superseded supply chain disruptions as the third-most-cited global risk.
Inflation remains top of mind—except in Europe and Greater China
Respondents’ concerns about supply chain disruptions as domestic economic risks have also diminished since the previous survey. Supply chain challenges are now the fifth-most-cited risk to respondents’ home economies, surpassed by concerns about rising interest rates. Inflation remains the most-cited risk to domestic economies for the second quarter, followed by volatile energy prices and geopolitical instability and conflicts. In all locations but Europe and Greater China, inflation is the most-cited threat to respondents’ economies over the next 12 months (Exhibit 2). In Europe, volatile energy prices and inflation are the growth risks cited most often, with geopolitical instability or conflicts a more distant third. In Greater China, the COVID-19 pandemic remains the most reported risk, cited by nearly half of respondents for the second quarter in a row.
As unease heightens in Europe, optimism builds in North America
Similar to the June survey, four in ten respondents say economic conditions in their countries have improved over the past six months. However, the findings show new regional divergence (Exhibit 3). Responses in Europe are more downbeat than earlier this year, with more than three-quarters of respondents now reporting that their economies have worsened. At the same time, in North America—where sentiment was closely aligned with Europe’s in the previous two quarters—respondents have become more positive since the previous survey. In Greater China, India, and Asia–Pacific, a majority say their economies have improved. But in Asia–Pacific, optimism has faltered. Respondents there are much less likely than in the previous survey to say that their countries’ economies have improved.
Expectations about the next six months also vary by region. Respondents in Europe and Asia–Pacific are less likely than in June to expect their countries’ economies to improve, while respondents in other developing markets have become more hopeful. Overall, respondents are about as likely to expect their countries’ economies to improve as to worsen in the next six months, as was also true in the previous survey.
Concerns mount over companies’ prospects
The latest survey asked private-sector respondents about the challenges their companies are facing and their expectations for the coming months. Nine in ten respondents say their companies have experienced cost increases in the past six months. The largest share of responses point to rising energy prices—which include electricity as well as fuel—as having the biggest impact, followed by increases in the costs of materials.
The concerns over various types of cost increases vary by region (Exhibit 4). In Europe, respondents primarily point to rising energy costs, whereas wage increases are of top concern in India and North America. Consistent across all regions, respondents say their companies have raised the prices of their products or services in the past six months. Looking ahead, 71 percent of respondents expect their companies’ operating expenses to be greater next year than they were last year.
What’s more, expectations for companies’ profits and customer demand are the most downbeat that they have been since July 2020. Just 51 percent expect profits to increase, down from 65 percent six months ago. The same share—51 percent—expect demand for their companies’ goods or services to increase.
While concerns over the effects of supply chain disruptions on global and domestic growth have eased since the previous survey, those disruptions remain top of mind as a risk to company growth for the second quarter (for more on how respondents expect their supply chains to change, see sidebar, “A note on the state of globalization”). Furthermore, a majority of respondents working in manufacturing—including those in automotive and assembly, aerospace and defense, advanced electronics, and semiconductors—or retail report that their companies’ inventory levels are not ideal. One-third say they have too much inventory, while 21 percent say levels are too low. Looking specifically within the consumer goods and retail sector, respondents are just as likely to report too little inventory as too much, while a plurality say their inventory levels are about right. Of the respondents in all manufacturing and retail industries reporting nonoptimal levels, nearly three-quarters expect their organization to achieve optimal levels within the next 12 months.
Download Economic conditions outlook, September 2022 (PDF–407 KB).
ABOUT THE AUTHORS
The survey content and analysis were developed by Jeffrey Condon, a senior knowledge expert in McKinsey’s Atlanta office; Krzysztof Kwiatkowski and Vivien Singer, both capabilities and insights experts at the Waltham Client Capabilities Hub; and Sven Smit, the chair and director of the McKinsey Global Institute and a senior partner in the Amsterdam office.
This article was edited by Heather Hanselman, an editor in the Atlanta office.
Economic conditions outlook, June 2022
A new survey finds that inflation now tops the list of perceived economic hazards in respondents’ home countries and geopolitical conflicts remain a top threat to the global economy.
Just one quarter after geopolitical conflicts and instability overtook the COVID-19 pandemic as the leading risk to economic growth, survey respondents’ concerns over inflation now exceed their worries about the effects of geopolitical issues on their countries’ economies. In the latest McKinsey Global Survey on economic conditions, respondents also see inflation as a growing threat to the global economy and continue to view geopolitical instability and supply chain disruptions among the top threats to both global and domestic growth.5
Amid this disruption-crowded environment, respondents report uneasy views on economic conditions, both globally and in their respective countries. For the fourth quarter in a row, respondents to our latest survey—conducted the first full week in June—are less likely than those in the previous survey to say economic conditions have improved. Overall, pessimism about the second half of 2022 is on par with the early months of the pandemic in 2020. Exceptionally, however, the mood is much more positive among respondents in Asia–Pacific and Greater China, who report improvements and continue to be upbeat about their economic prospects.
Inflation, geopolitical, and supply chain concerns all loom large
Respondents’ views of the top threats to their home economies have shifted since March 2022,6 and they now most often cite inflation as a risk over the next year (Exhibit 1). While geopolitical conflicts were top of mind in the previous quarter’s survey, which ran four days after Russia had invaded Ukraine, respondents are now nearly half as likely to cite geopolitical issues as a risk to their countries’ economies. Geopolitical conflicts and instability remain an outsize concern in Europe, where 50 percent list it among their top risks. But even in Europe, inflation is the risk cited most often—as it is in every geography except Greater China.7 There, respondents most often point to the COVID-19 pandemic.
Respondents predict extended disruption related to the Ukraine invasion
We asked survey respondents about their expectations for how the war in Ukraine might affect lives and livelihoods outside the conflict zone. When asked about the war’s effects on the global economy, a plurality of respondents—37 percent—select a scenario called 2B, in which hostilities either end or are easing within the next six months and the global response is moderate, with a continued exit from stimulus policies related to the COVID-19 pandemic, reduced decarbonization goals, and a restart of fossil-fuel investments (exhibit).
Geopolitical instability remains the top-cited threat to the global economy (see sidebar, “Respondents predict extended disruption related to the Ukraine invasion”), as it was in the March survey, and inflation has overtaken volatile energy prices to become the second-most-cited concern. Supply chain disruptions round out the top three global risks, followed by volatile energy prices and rising interest rates. For the second survey in a row, more than three-quarters of respondents expect interest rates in their countries to increase in the next six months.8
Respondents also see supply chain disruptions as major obstacles for their companies’ growth. In the latest survey, that answer choice has overtaken geopolitical instability as the most-cited risk to companies’ growth. These supply chain concerns—and those about the changing trade environment and relationships—are much more common among respondents who say at least some of their companies’ essential materials9 are produced in China than among those who don’t source materials from China.
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Respondents are largely pessimistic about the global economy but more positive about their countries’ prospects
Nearly two-thirds of respondents say the global economy is worse now than it was six months ago—the highest share to say so since the June 2020 survey. That appraisal is much more negative than what respondents predicted six months ago: in our December 2021 survey, nearly six in ten respondents expected to see economic improvements over that time period. At the same time, respondents’ takes on both current and future conditions in the global economy have grown progressively gloomier since June 2021, with half of all respondents expecting conditions to worsen in the second half of 2022 (Exhibit 2).
The findings about respondents’ respective countries also have grown more somber over the past year (Exhibit 3). For the first time since the September 2020 survey, respondents are more likely to say economic conditions in their countries have worsened than improved over the past six months. Views vary widely by region, however. In both Asia–Pacific and Greater China, about two-thirds of respondents say their countries’ economies have improved. The responses from Europe and North America are much more downcast: just one in five respondents in each region report recent improvements in their economies.
That said, respondents’ expectations for their home countries over the next six months are somewhat more hopeful than their outlook on the global economy: 39 percent expect their economies to improve in the near future. However, this is the first survey since the one in September 2020 in which less than half of respondents expect improvements in their home economies. Now, they are just as likely to expect economic conditions will improve as decline.
McKinsey Global Surveys
Most respondents in Asia–Pacific and Greater China expect their economies to improve in the second half of 2022, although overall optimism has declined since the previous survey (Exhibit 4). Over the same time period, respondents in Europe and North America have become much more pessimistic about the future.
Download Economic conditions outlook, June 2022 (PDF– KB).
ABOUT THE AUTHORS
The survey content and analysis were developed by Krzysztof Kwiatkowski and Vivien Singer, capabilities and insights experts in McKinsey’s Waltham, Massachusetts, office, and Sven Smit, the chair and a director of the McKinsey Global Institute and a senior partner in the Amsterdam office.
This article was edited by Heather Hanselman, an editor in the Atlanta office.
Economic conditions outlook, March 2022
Worries about geopolitical conflicts, among other risks to growth, now exceed executives’ concerns about the COVID-19 pandemic. Overall economic optimism continues to decline.
Geopolitical instability is now cited as the top risk to both global and domestic economies in our latest McKinsey Global Survey on economic conditions.10 That’s the consensus among executives worldwide, who have cited the COVID-19 pandemic as a leading risk to growth for the past two years.
Our quarterly survey was launched four days after the invasion of Ukraine, and executives express uncertainty and concern about its impact on the economy. About three-quarters of respondents cite geopolitical conflicts as a top risk to global growth in the near term, up from one-third who said so in the previous quarter. Meanwhile, the share of respondents citing the pandemic as a top risk fell from 57 to 12 percent, as much larger percentages now identify energy prices and inflation as threats to the global economy.
At the same time, overall sentiment about the economy remains largely positive, but it continues to trend downward. For the third quarter in a row, respondents are less likely than in the previous one to report that economic conditions in their respective countries and across the globe are improving. They are also less likely to believe that either global or domestic conditions will improve in the months ahead. The near-term economic outlook is especially gloomy among respondents in developed economies, whose views are increasingly downbeat compared with their emerging-economy peers.
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Geopolitical conflict overshadows all other risks to growth
According to the survey results, executives expect that the economic effects of the invasion of Ukraine will be strongly felt. Seventy-six percent of all respondents cite geopolitical instability and/or conflicts as a risk to global economic growth over the next 12 months, and 57 percent cite it as a threat to growth in their home economies (Exhibit 1).
Executives see geopolitical instability as the top risk to both global and domestic growth in every geography except Greater China,11 where respondents most often cite the COVID-19 pandemic. Thirty-nine percent of respondents there say the pandemic is a threat to domestic growth, compared with 5 percent of all other respondents.
Nearly two years after COVID-19 was declared a global pandemic,12 this is the first time our respondents have not cited the pandemic as the top risk to growth in the global economy (Exhibit 2).
Overall sentiment continues to wane
While respondents tend to report improving—rather than worsening—conditions in the global economy and in their home countries, the percentages of executives saying so continue to decrease over time (Exhibit 3).
Their outlook for the next six months is even more downbeat, especially for the global economy (Exhibit 4). Forty-three percent of respondents believe the global economy will improve over the next six months, a share that’s nearly equal to the 40 percent who think conditions will worsen. This month’s result also marks the first time since July 2020 that less than a majority of respondents feel optimistic about the global economy’s prospects.
And while executives overwhelmingly cite geopolitical conflicts as a risk to economic growth, rising interest rates are a growing concern as well. Interest rates are among the top five risks to near-term growth in the global economy (for the second survey in a row) and in respondents’ home countries—and the share of respondents expecting a significant increase in near-term interest rates has more than doubled since the previous quarter. Across regions, executives in North America and in Europe are the most likely to expect interest rates to rise rather than hold steady or decrease.
McKinsey Global Surveys
The divide between developed and emerging economies grows
For the third quarter in a row, the survey results suggest a widening gap in optimism between developed-economy and emerging-economy respondents. In developed economies—where respondents cite geopolitical conflicts as a risk to growth more often than their peers do—sentiment is declining at a faster rate than in emerging economies. Only 52 percent of developed-economy respondents, versus 73 percent of their emerging-economy peers, say economic conditions at home have improved in recent months. In our two previous surveys, the gap was much smaller (Exhibit 5).
This trend is also evident in respondents’ views on the global economy. This month, just 39 percent of developed-economy respondents say global economic conditions have improved in recent months, compared with 68 percent in emerging economies. Respondents in developed economies also report a more downbeat outlook for the coming months: only 36 percent believe conditions in the global economy will improve in the near term, versus 55 percent of their emerging-economy peers.
Download Economic conditions outlook, March 2022 (PDF–422 KB).
