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CEO Confidence Plummets to New Low | Most Top Executives Expect Slow Turnaround

Depth of the Crisis Impacts all Regions, Sectors

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In spite of crisis, CEOs keep focusing on drivers of long-term success

Battered by recession, CEOs' confidence about future prospects for business has plummeted and executives expect a slow, gradual recovery over the next three years, PricewaterhouseCoopers 12th Annual Global CEO Survey has found.

CEO confidence plunged to its lowest level since 2003, when PwC began tracking CEOs' forecasts. Worldwide, just 21% of CEOs said they were very confident of revenue growth in the next 12 months, down from 50% in last year's survey. And more than a quarter of CEOs said they were pessimistic about prospects for the coming year. The survey results were released today at the World Economic Forum annual meeting in Davos, Switzerland.

CEOs worldwide were also gloomier about longer term growth as well, predicting a slow recovery. Only 34% said they were very confident of growth over the next three years, down from 42% last year, when CEOs were just beginning to recognise the full impact of the credit crisis on the global economy. Illustrating the changing mood, CEOs confidence worsened over the course of the surveying (from September till November 2008) as negative economic news unfolded.

Pessimism prevailed across all geographic regions, business sectors and levels of economic development, the survey found. Only 15% of CEOs in North America and 15% in Western Europe expressed confidence about growth prospects for the next 12 months. This compared with 21% in the emerging economies of Central and Eastern Europe, 31% in Asia Pacific, and 21% in Latin America. 41% respondents from CEE expect improving the situation in next 3 years.

"The speed and intensity of the recession has rocked the psyches of CEOs and created a global crisis of confidence,” said PricewaterhouseCoopers' Global CEO Samuel A. DiPiazza, Jr. "CEOs are most concerned about the immediate survival of their companies. Even in once rapidly emerging economies, companies are now coping with issues like unavailable credit, sluggish capital markets, and collapsing demand.

Jiří Moser, a Partner in Advisory Services, PricewaterhouseCoopers Czech Republic, added:

"In 2008 in the Czech Republic, there was a feeling of optimism regarding when the effects of the economic crisis would be felt by the Czech economy. Today, in January 2009, it seems that the effects of the crisis and other global problems will fully hit the Czech economy during 2009.”

The impact of the recession in the world's major economies, cited by 85% of survey respondents worldwide, continued to dominate concerns of CEOs and was the only risk factor to increase among CEOs' concerns. Other major risk factors included disruption in the capital markets, cited by 72%, over-regulation, 55%, energy costs, 50%, and availability of key talent, 46%.

Further highlights of the survey results:

Banking Crisis Pervasive

CEOs expect the worldwide banking crisis to have a broad impact on business, affecting companies across all geographic regions and business sectors. Nearly 70% of CEOs said their companies will be affected by the credit crisis. Of those, nearly 80% said they faced higher financing costs, and nearly 70% said they would delay planned investments as a result. Companies in the banking, utilities, construction, entertainment and automotive sectors are most likely to be impacted, CEOs said.

Those CEOs whose companies were anticipating growth said they would fund it primarily thorough internal cash flow, followed by the debt and equity markets.

Response to crisis

CEOs see potential for the growth in their business mainly in better penetration of existing markets (37%), followed by entering new geographic markets and new products and services development (each 17%)

About 75% of respondents said they are already responding by developing new products and services and by making changes to their operations. More than half expect to make a return on those investments in the next 12 months.

JVs to overtake cross-border M&A Activity

The percentage of CEOs who believe that Joint Ventures (JVs) will play a greater role than M&A in cross-border growth has surged, particularly in Western Europe and Latin America. This may reflect the lower cost and risk level associated with JVs, as well as the increasing popularity of collaboration to deal with the challenges of cross border growth.

However, merger and acquisition activity has decreased. Only 20% of respondents said they had completed such a transaction last year. The decline in M&A was most pronounced in emerging economies in Asia and Eastern Europe. Cultural differences, unexpected costs and delivering deal value were the three most common concerns of CEOs in considering M&A.

Availability of key talent Remains on the Agenda

Despite the severity of current economic conditions, CEOs continued to be concerned with long term needs. Access to key talent remained a vital concern; only 26% said they planned to reduce headcount in the coming year, while 35% planned to maintain staffing levels.

Finding and retaining top talent remains a major priority for CEOs. A shortage of candidates with essential skills was cited as a key challenge by nearly 70% of respondents. Other human resource concerns included recruiting and integrating younger employees, providing attractive career paths, and competition for talent within their sector. CEOs cited strategies such as creating more flexible work environments, redeploying key employees and participation in social activism as means to overcome talent challenges.

Better Information Needed to Manage Risk

CEOs recognized a huge gap in the information required to manage risk, and fuel long-term success. While 92% said information about risk is important, only 23% said they received comprehensive information about it. In addition, just 21% get comprehensive information about the needs and preferences of customers and clients.

The ‘regulation paradox’

CEOs said they recognise the need to collaborate with government to address systemic problems. Yet, while 55% of CEOs remain concerned about overregulation as an obstacle to growth, nearly half also said their governments have not done enough to create a skilled workforce, and 38% said governments could do more to improve infrastructure. Likewise, more than 80% of CEOs favoured clear, consistent government policies to address climate change, but just 28% believe that their governments have such policies.