Is the global economy improving? Those in the best position to know—finance executives at leading companies—are more optimistic than they have been in the recent past. The one qualifier to that optimism, though, is that it tends to fluctuate depending on what part of the world the respondent lives in. By and large, CFOs in North America have a more favorable outlook on economic conditions than their counterparts in other parts of the world.
For instance, 66% of North American respondents to a recent CFO survey conducted by Ernst & Young say they are confident about short-term market stability, but that confidence level drops to 53% among CFOs in the Asia-Pacific region and even lower, to 43%, among Latin American CFOs. Similarly, while 67% of North American CFOs believe the global economy is improving, the number plummets below the 50% line to only 44% in the Middle East and Africa (not surprising, given the frequent outbreak of hostilities in that region).
In fact, for respondents as a whole, the greatest economic risk to businesses over the next six to 12 months is increased global political instability (29% of respondents). CFOs are also concerned about the slowdown in key emerging markets (28% of respondents), particularly since they intend to spend the majority of their acquisition capital (61%) in these markets, as opposed to developed regions.
Another study, the Duke University CFO Global Business Outlook Survey, mirrors the E&Y study in its finding that CFOs in the U.S. and Asia are far more optimistic about the global economy than CFOs in Latin America and Africa. The Duke study also reveals that respondents believe the business environment has been soured by the public’s overall lack of trust in government and business leaders. U.S. financial executives, somewhat surprisingly, are the least cynical on a global basis, as 59% of them agree that lack of public trust is hurting the economy, while the numbers are even higher in other areas of the world: 64% in Africa, 68% in Europe, 71% in Asia and 79% in Latin America.
“Public distrust inhibits the economy from reaching its full potential,” explains Duke University’s John Graham, director of the survey. “Mistrust can reduce growth and it causes companies to devote time and resources to counteract mistrust’s negative effects.” That lack of trust, he says, has led companies to alter some business decisions, change their governance and emphasize transparency. “While all of these effects may not be negative, like increasing transparency, several of the effects are negative, and they all require companies to expend resources and can distract management’s focus,” Graham says.
CFOs in emerging markets are widely concerned about the impact of expected labor unrest and work stoppages on their local economies. Brazil tops the list, with 85% of Brazilian respondents registering concern about labor unrest, followed by Chile (68%) and Peru (52%). Twenty-nine percent of CFOs in China expect some economic damage from labor unrest, but only 9% of U.S. respondents share that concern.
The main causes of the labor unrest, Graham notes, are wage presses, recessions, income inequality and, in some cases, poor working conditions.