NZ CEOs confidence dips 16% about global economy for 2015

Embargoed until 5am Friday 27 February 2015

News release

Survey finds New Zealand CEOs confidence dips 16% about global economy for 2015

Findings from PwC’s New Zealand insights publication, released today, which follows the 18th Annual Global CEO Survey, show New Zealand CEOs are less positive about the outlook for the global economy than they were last year with 47 per cent believing the global economy will improve in the next 12 months. This compares to last year’s far more confident 63 per cent.

Yet optimism remains when it comes to their own companies, with 88 per cent of New Zealand CEOs either somewhat or very confident of their organisation’s revenue growth prospects in the coming 12 months just down slightly a percentage from last year.

PwC New Zealand Chief Executive Officer Bruce Hassall says that the outlook for New Zealand may prove to be more resilient than many currently believe.

“The GDP data out for the September quarter surprised economists and was much stronger than expected – and that was with dairy prices significantly lower. The New Zealand economy may surprise us further with its strength. There will be regional dynamics to this – and in Auckland in particular, confidence is currently high, with the property sector and export opportunities underpinning this.”

Revenue Growth

Despite the overall declining outlook for the global economy, CEOs both in New Zealand and globally, remain confident about prospects for their own company; 35 per cent of New Zealand CEOs said they are ‘very confident’ their company’s revenues will grow in the next 12 months although this is again well down on last year’s 60 per cent. In comparison, this figure has remained stable at 39 per cent for global CEOs which was the same last year.

Looking country by country, New Zealand is high on the list with 47 per cent of our CEOs very confident in their short-term prospects. India’s CEOs topped the rankings with 62 per cent very confident, with other leading countries including Mexico (50%), the US (46%), Australia (43%) the UK and South Africa (39%), China (36%), Germany (35%) and Brazil (30%). Among the least confident countries are France (23%), Venezuela (22%), Italy (20%), Argentina (17%) and, at the bottom of the list, Russia, with only 16% of CEOs very confident of revenue growth for 2015. This is down from 53 per cent last year when Russia’s CEOs were the most confident in the world.

Mr Hassall says that the right strategic balance to sustain growth in this shifting marketplace remains a challenge for New Zealand businesses that are increasingly connecting to overseas markets.

“CEOs overall remain cautious and while we’re seeing a strengthening US economy, Europe is labouring due to their failure to confront underlying structural issues,” says Mr Hassall.

“Russia is one of the biggest trading partners of many European countries, particularly Germany, and if you add the failure to address structural concerns, their heavy welfare bases, and overlay this with the situations in Greece, Italy, Spain and Portugal, it makes for a delicate situation in Europe.

“There are some warning signs that Russia could take the European economy and force it back into recession. With the Russian economy much more connected to Europe than it used to be - this has created a different dynamic. It remains to be seen whether the massive QE money printing programme announced by the European Central Bank will get European consumers spending again to reflate and lift economic growth.”

Strategies for Growth

CEOs say they will undertake a number of business strategies to strengthen their companies in the coming 12 months. Overall, 66 per cent of New Zealand CEOs say they will cut costs (compared with 71% globally), 50 per cent will form strategic alliances or joint ventures (51% globally) and 35 per cent will outsource a business process or function (31% globally).

As New Zealand CEOs look to international markets, they ranked Australia as their most important market for growth over the next 12 months (69%), followed by China (56%), the US (52%), and the UK (18%).

Internationally, CEOs ranked the US as their most important market for growth over the next 12 months, placing it ahead of China for the first time since we started asking this question five years ago. Overall, 38 per cent 0f CEOs say the US is among their top-three overseas growth markets, compared with 34 per cent for China, 19 per cent for Germany, 11 per cent for the UK and 10 per cent for Brazil.

“We’re seeing a strengthening US economy. Similar to the New Zealand economy, the US is going to prove itself considerably stronger and more robust than people are giving it credit for. The US is traditionally good at taking its punishment early and hard, so it bounces back faster.”

“China is going to continue to perform strongly. Interestingly when we talk about Chinese growth going below 7.5%, everybody gets worried about it. But it might still hover around 7 per cent and it’s in pretty good shape, although there are some concerns around their property market and banking.

“The Chinese Government can call upon their massive foreign reserves, are running massive trade surpluses and the government accounts are in surplus, meaning they have the tools and the financial muscle to actually handle situations that may arise, quite a contrast to Europe,” says Mr Hassall.

What worries CEOs most?

Availability of key skills tops the list of concerns named by 84 per cent of New Zealand CEOs, which is more than the global level (of 73%), and up from last year’s figure (80%).

The speed of technological change is the biggest mover increasing to 68 per cent for New Zealand CEOs from 37 per cent last year in 2014 and slightly higher than 58 per cent of CEOs globally.

Concern about cyber threats and the lack of data security has also radically increased for 66 per cent of New Zealand CEOs compared to 40 per cent last year and this was a global trend (61% for CEOs globally, 48% in 2014).

Over-regulation was also listed as a concern for 66 per cent of New Zealand CEOs, and globally this was the top concern for 78 per cent of CEOs worldwide. This is now at the highest level ever seen in the global survey but interestingly, this decreased from 71 per cent from last year’s results for New Zealand CEOs. Countries where concern about over-regulation is particularly high include Argentina (98%), Venezuela (96%), the US (90%), Germany (90%), the UK (87%), and China (85%).

Other top concerns cited by New Zealand’s CEOs include geopolitical uncertainty at 60 per cent (although less than global peers at 72%) and new entrants to markets 58 per cent (also lower at 54%). For CEOs worldwide, these include fiscal deficits and debt burdens (72%), increasing taxes (70%), as well as social instability (60%) and shifting consumer patterns (60%).

Partnering

New Zealand CEOs say 27 per cent of their organisations have recently entered one or more new industries in the last three years, and more than half (56%) believe that organisations will increasingly compete in new sectors in the next three years. New Zealand CEOs think a significant competitor is emerging or could emerge from the following sectors: technology (34%), retail and wholesale distribution (18%) and professional and business services (18%).

New Zealand organisations are also using joint ventures, alliances and informal collaborations to gain a competitive edge, working with suppliers (35%), customers (44%), and academia (23%) and partnering is important to be able to compete against bigger international rivals with the costs of acquiring skills and technology.

Top reasons for New Zealand CEOs partnering with other organisations are to gain access to new customers (52%), to strengthen their brand or reputation (50%), strengthen innovation capabilities (40%) and share risks (35%).

The Digital Age

The emergence of digital technology has completely changed how companies do business; 68 per cent of New Zealand CEOs are concerned about the speed of technological change compared with 37 per cent last year. Mobile technologies are seen by 84 per cent of New Zealand CEOs as most important to their company (81% globally), followed by cyber security (81% v 78% globally), data mining and analysis (77% v 80% globally), cloud computing (74% v 60% globally) and the internet of things (73% v 65%). New Zealand companies get the most benefit from digital technologies in the areas of operating efficiency (87%), customer experience (85%) and data and data analytics (82%).

“There is a big opportunity for all businesses in data analytics with new digital technologies enabling people to capture vast amounts of information about customers, supply chains and all organisations that interact with them. How you then make use of that information to drive your business will be a critical success factor,” concludes Mr Hassall.

Talent Diversity and Adaptability

Over half of New Zealand CEOs say they will increase their headcount over the next 12 months, which is consistent worldwide, while 21 per cent expect a decrease (this is slightly more than last year’s figure of 15%). As New Zealand CEOs seek to meet the challenge of finding the right people, 73 per cent say they are looking for a broader range of skills. Nearly a third (32%) of New Zealand CEOs’ organisations has a diversity and inclusiveness strategy– meaning nearly two- thirds don’t. Of those who have such strategies, 80 per cent say it has improved their bottom line. New Zealand is behind global trends in this area, with nearly two-thirds of CEO organisations having a diversity and inclusiveness strategy internationally, with 85 per cent saying it improved their bottom line.

-ends-

Notes to editors:

Survey methodology

For PwC's 18th Annual Global CEO Survey, 1,322 interviews were conducted in 77 countries including New Zealand during the last quarter of 2014. By region, 459 interviews were conducted in Asia Pacific, 455 in Europe, 147 in North America, 167 in Latin America, 49 in Africa and 45 in the Middle East. The Global Results of the survey were released 20 January 2015 at the opening of the World Economic Forum Annual Meeting in Davos, Switzerland.

The full global survey report with supporting graphics can be downloaded at www.pwc.com/ceosurvey

From February 27th, the full global and New Zealand findings will be available on www.pwc.co.nz/ceosurvey

© Scoop Media