ASEAN CEOs the most pessimistic for 2019 shows PwC global survey

24 January 2019 Consultancy.asia

The results are in for this year’s PwC annual global CEO survey, and chiefs in the ASEAN bloc are especially gloomy as to growth expectations for the year ahead.

Big Four professional services firm PwC has released the 22nd edition of its keenly anticipated Annual Global CEO survey to commence proceedings at Davos, and, after a record jump in optimism last year, the world’s business leaders have grown glum as to the prospect for global economic growth in 2019 – this year returning a record, six-fold spike in pessimistic responses. And those in ASEAN are well above the global average in expecting a downturn.

Carried out among 1,378 chief executives from more than 90 territories toward the end of last year, with half of the respondents representing organisations with revenues in excess of $1 billion, the annual PwC has become one of the most reliable indicators for the coming shape of global economy. This year, the ratio of CEOs who believed there would be a decline in global growth was 29 percent – compared to just 5 percent on last year’s survey.Pessimism rises six-fold among global CEOs for 2019 In addition, the number of CEOs who remain faithful as to positive growth in the coming twelve months has dropped fifteen points from last year’s high of 57 percent to just 42 percent. And the outlook gets worse. CEO confidence in the revenue growth prospects for their own organisations in the year ahead has dropped to barely a third – the lowest level since 2010 – while the three-year outlook, usually a bastion of positivity, has declined sharply to 36 percent.

In 2017, this medium-term figure stood at 51 percent, and hasn’t dropped below 46 percent since 2009 – when it was roughly at the same level as now (34 percent). ‘When taken as a whole, the CEO confidence story is a sobering one,” notes the PwC report, which this year looked back to assess the predictive accuracy of its CEO survey, finding a clear correlation between business sentiment and the rate of global GDP growth in the year to follow.CEO confidence a barometer for global GDPAs for the ASEAN region, the outlook is even bleaker. 46 percent of locally-operating CEOs believe the global economy is set for a GDP downturn in the year ahead, eclipsing even the most pessimistic Middle East cohort, and well above the Asia Pacific rate of 36 percent. The number of ASEAN CEOs forecasting an improvement is also lower than the global average, at 32 against 42 percent. Notably, 83 percent of local CEOs cited trade conflicts as of major concern.

“With the rise of trade tension and protectionism it stands to reason that business confidence is waning,” said PwC Singapore executive chairman Yeoh Oon Jin. “This is especially so in ASEAN this year, with ASEAN CEOs showing even greater pessimism than their Global counterparts. This is in stark contrast to sentiments over the past few years where we have been seeing greater optimism in Asia.”Optimistic and pessimistic outlooks of CEO’s worldwideIn respect to the trade spat and broader policy uncertainty (the latter cited by 78 percent of ASEAN CEOs as of serious concern), the survey also revealed that a majority of CEOs in Southeast Asia are already taking a strong reactive approach, with 29 percent each stating that they were adjusting their supply chain/sourcing strategies and/or delaying capex, and 17 percent saying they are adjusting their growth strategy to different countries.

The bright side? PwC’s APAC CEO survey released in conjunction with last year’s APEC CEO summit demonstrated the high level of sensitivity to trade policy uncertainty, with 59 percent of those surveyed by June 21st stating a high level of confidence for revenue growth, and that rate dropping to just 20 percent a week later as US/China trade tariffs loomed. For this year’s global survey, ‘policy uncertainty’ has emerged from nowhere as the second greatest CEO concern.

PwC’s global chairman Bob Moritz however contends that this is only part of the picture. In an interview with CNBC on the question of whether the upcoming meeting between Washington and Beijing might improve sentiment should a deal arise, Moritz said; “I’m not sure it’s going to remove all of the pessimism. When you take a look at economic factors and trends, even those trade conflicts, it’ll actually reduce the risk there, but necessarily not make it go away.”

Related: ASEAN could benefit from US-China trade spat due to supply chain rethink

Economic boom will see 500 million Indians enter middle-class within a decade

18 April 2019 Consultancy.asia

India’s economy is projected to grow at a base rate of 7.5% annually to 2030 according to an analysis from Bain & Company, with 500 million people moving into the middle- and high-income bracket over the period.

India has boomed in recent years, buoyed by a growing population and rapid economic development. Today the country is the world’s second largest in terms of population and sixth largest in respect to economic clout – with its economy still growing as one of the world’s fastest, at 7.5% in 2017. As incomes have risen, millions of citizens have moved up into new consumer categories.

An analysis from Bain & Company for the World Economic Forum shows that the future is also bright for the country according to long-term fundamentals, with a growing GDP of which around 60% is domestic private consumption, insulating it to a degree. There is also a healthy savings rate, at around 22% of income, and a large working age population, with a median age of 28 years.Evolution of household income in IndiaThe Indian economy is projected to enjoy strong growth in both the low and high case scenarios considered in the analysis. The base case will see economic growth stable at 7.5% on average until 2030, with just a 1% degree shift either side of this figure for the lower and the higher case scenarios. The effect of growth for the base case is an additional 500 million middle- and high-income earners added to the economy to 2030, with 50 million fewer in the low case scenario – pushing the share of upper-middle and high-income earners to 48% of the total population.

The firm’s projection of income growth would see consumption spending increase from $1.5 trillion to a massive $5.7 trillion by 2030. The growth is largely driven by a huge increase in the country’s middle class households, which are set to expand by 140 million, while the high-income earners are set to grow by 21 million – together a 51% increase on 2018. The middle class will see its share of total consumption increase from 30% to 47%, while around 25 million people will be rise out of poverty, with total poverty decreasing from 15% to 5% of the population.Indian population statisticsUnlike much of the developing world, India is ageing slowly, with a current median working population age of 28 which is set to rise only slightly, to 31, by 2030. The effect is that by 2030 the country will have the largest working age population at the youngest relative age. The rural population has also shrunk considerably since 2005, falling from 59% of the population to 51%.

The developed rural population has grown slowly over the same period, from 13% to 15%. The urban population meanwhile has increased from 28% of the population to 34%. Urbanisation is also set to continue. By 2030, the rural population is projected to decrease further, to 44%, with developed rural only growing by 1% in the period. Urban development is projected to hit around 40% by 2030.

The ongoing urbanisation and rising incomes will lead to further consumer shifts. With considerable changes to income distribution across India, growth in the middle class segment is expected to see around $2 trillion in incremental spending on affordable mid-priced offerings, while a further $2 trillion will be shifted to more premium product lines as consumers trade up.Consumer spending shifts in IndiaBain notes that buying behaviour will shift in line with both trading up as well as in new category spending. In food for instance, around 25% incremental spending will shift towards more premium goods, while around 32% will shift into health and organic food stuffs.  Personal care meanwhile is set to see considerable premiumisation, at 59% of incremental spending, as well as a broadening of product categories.

“India will continue on its path as one of the world’s most dynamic consumption environments, propelled by five major drivers: income growth; steady and dispersed urbanisation; favourable demographics; technology and innovation; and evolving consumer attitudes,” states the report. “As these drivers move India forward, many stakeholders have the potential to shape the country’s positive consumption future.”

It concludes: “The time is ripe for these stakeholders to come together and address head-on the most pressing societal challenges facing India today – skilling and job creation, socio-economic inclusion of rural India, and building a healthy and sustainable future for its citizens. Collaborative efforts to address these challenges will unlock the full potential of a young, connected and thriving nation, and establish India as a model for fast-growing consumer markets of the world.”