74% of Malaysian CEOs believe global economic growth will decline over the next 12 months: PwC

• 51% of Malaysian CEOs (and 40% of global CEOs) think their organisation will no longer be economically viable in 10 years' time if they continue on their current course 

• Inflation (40%), macroeconomic volatility (29%) and geopolitical conflict (23%) rank as the top threats for Malaysian CEOs 

• CEOs are cutting costs. However, 60% globally and 71% in Malaysia don't plan to reduce headcount while 80% globally and 83% in Malaysia don’t plan to reduce compensation in the fight to retain talent following the ‘Great Resignation'

KUALA LUMPUR, 19 January 2023 – Nearly three quarters (73%) of CEOs globally believe global economic growth will decline over the next 12 months, according to PwC’s 26th Annual Global CEO Survey, which polled 4,410 CEOs in 105 countries and territories in October and November 2022. Similar sentiments were observed among 74% of Malaysian CEOs. 

The bleak CEO outlook is the most pessimistic CEOs have been regarding global economic growth since we began asking this question 12 years ago and is a significant departure from the optimistic outlooks of 2021 and 2022, when more than three-quarters globally (76% and 77%, respectively) thought economic growth would improve. The trend is similar in Malaysia, in stark contrast to local sentiments in 2022 (where 92% of Malaysian CEOs expressed optimism over global economic growth) and 2021 (71% expressed optimism). 

51% of Malaysian CEOs think their organisation will not be economically viable in a decade 

In addition to a challenging environment, nearly 40% of CEOs globally and 51% of Malaysian CEOs think their organisations will not be economically viable in a decade if they continue on their current path. The pattern is consistent across a range of sectors globally, including telecommunications (46%), manufacturing (43%), healthcare (42%) and technology (41%). Globally, CEO confidence in their own company’s growth prospects also declined dramatically since last year (-26%), the biggest drop since the 2008-2009 financial crisis when a 58% decline was recorded.

In contrast, CEOs in larger Asia Pacific countries are much more optimistic about their domestic growth: China (64%), India (57%) and Indonesia (50%) (compared to global - 29%). The growing emphasis on national interests over global ones represents an acceleration of trends underway - however the fundamentals of the Asia Pacific region continue to be bolstered by trade liberalisation and markets welcoming foreign direct investment.

Inflation, macroeconomic volatility and geopolitical conflict top CEOs’ concerns

While cyber and health risks were the top concerns a year ago, the impact of the economic downturn is top-of-mind for global CEOs this year, with inflation (40%) and macroeconomic volatility (31%) leading the risks weighing on CEOs in the short-term – the next 12 months – and over the next five years. Close behind, 25% of CEOs also feel financially exposed to geopolitical conflict risks whereas cyber risks (20%) and climate change (14%) have fallen in relative terms.

Similar trends are evident in Malaysia in the next 12 months amidst softening customer demand and persistent economic uncertainty; inflation (40%) is the top threat to growth, followed by macroeconomic volatility (29%) and geopolitical conflict (23%). 

Growing concern about geopolitical flashpoints in parts of the world have caused CEOs globally to rethink aspects of their business models, with almost half of global respondents that are exposed to geopolitical conflict integrating a wider range of disruptions into scenario planning and corporate operating models either by increasing investments in cybersecurity or data privacy (48%), adjusting supply chains (46%), re-evaluating market presence or expanding into new markets (46%), or diversifying their product/service offering (41%). 

CEOs are cutting costs but not headcount or compensation

In response to the current economic climate, CEOs are looking to cut costs and spur revenue growth. 52% of global CEOs (74% in Malaysia) report reducing operating costs, while 51% globally (40% in Malaysia) report raising prices and 48% globally (63% in Malaysia) report diversifying product and service offerings.

However, more than half globally – 60% – say they do not plan to reduce the size of their workforce in the next 12 months. A vast majority globally – 80% – indicate they do not plan to reduce staff remuneration in order to retain talent and mitigate workforce attrition rates. The proportion is higher among Malaysian CEOs, with 71% not planning to reduce their workforce, and 83% not planning to reduce compensation, as they strive to maintain a balance between long-term growth and current operating issues. 

Bob Moritz, Global Chairman, PwC, said: 

“A volatile economy, decades-high inflation, and geopolitical conflict have contributed to a level of CEO pessimism not seen in over a decade. CEOs globally are consequently re-evaluating their operating models and cutting costs, yet despite these pressures, they are continuing to put their people front and centre as they look to retain talent in the wake of the ‘Great Resignation.’ The world continues to change at a relentless pace, and the risks facing organisations, people – and the planet – will only continue to rise. If organisations are not only to thrive – but survive the next few years – they must carefully balance the dual imperative of mitigating short-term risks and operational demands with long-term outcomes - as businesses that don’t transform, won’t be viable.”

Managing climate risk a growing priority for businesses

While climate risk did not feature as prominently as a short-term risk over the next 12 months relative to other global risks, CEOs globally still see climate risk impacting their cost profiles (50%), supply chains (42%) and physical assets (24%) from a moderate to very large extent.

Recognising the impact climate change will have on business and society over the long-term, a majority of CEOs have already implemented – or are in the process of implementing – initiatives to reduce their companies’ emissions (65%), in addition to innovating new, climate-friendly products and processes (61%), or developing data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks (58%). 

Despite an increasing number of countries now having some form of carbon pricing, a majority of respondents (54% globally vs 57% in Malaysia) still do not plan to apply an internal price on carbon in decision-making, and over a third globally (36%) and 26% in Malaysia, don’t plan to implement initiatives to protect their company’s physical assets and/or workforce from the impact of climate risk. 

Soo Hoo Khoon Yean (Soo Hoo), PwC Malaysia Managing Partner said:

"The implications of ESG issues on core areas of the business are placing a dent on CEO confidence. Supply chain is the area anticipated to be most prominently impacted by climate change risks in the next 12 months (for 51% of Malaysian CEOs vs 42% of their global counterparts). This paints a sobering picture of customer trust, which hangs in the balance if affected by supply chain disruptions.

To continue protecting the future of the business, CEOs will need to dig deeper to recognise what they can't live without. Anchoring their decisions on a clear organisational purpose and building a culture that speaks to that purpose will shape where they invest, cut back or continue to pursue."

The continued importance of trust and transformation in generating long-term value

CEOs globally noted the need to collaborate with a wide range of stakeholders to build trust and deliver sustained outcomes if they are to generate long-term societal value. The survey found that when organisations partner with non-business entities, it is to address sustainable development (54%), diversity, equity, and inclusion (49%), and education (49%).

If organisations are to remain viable in the near and long-term, they must also invest in their people and technological transformation agendas to empower their workforces. Technologically, more than three-quarters (76%) of organisations globally say they are investing in automating processes and systems, implementing systems to upskill workforces in priority areas (72%), deploying technology such as the cloud, AI and other advanced technology (69%).

ENDS