McKinsey Survey's Take on the Economy: Bad, but Not Awful


Like a lot of other people, I feel pretty rattled by all the grim economic news that I've been chronicling on this blog, with reports of reductions in tech spending and companies shedding jobs.


"Comforted" is probably too strong a word, but I did feel a bit better after reading The McKinsey Quarterly's recent survey of global business executives. Though their outlook on the near-term financial future is pessimistic, their companies are bearing up pretty well thus far under the economic pressure. (Free site registration is required.) As usual, McKinsey includes lots of interesting charts and graphs to illustrate the survey results.


Two-thirds of respondents say their companies haven't sought funding from outside sources since mid-September. Somewhat surprisingly, it's not because they are worried they won't get it; they just don't need the money (81 percent). But of those who did seek funding, 17 percent couldn't get it, nearly double the percentage of companies that experienced problems obtaining funding from July to September.


Confirming what I've seen elsewhere, three-quarters of respondents are cutting operating expenses and 37 percent are trimming capital investments. But significant numbers of companies are exploring new opportunities in the downturn by introducing new products to grab market share from weakened competitors (34 percent), seeking merger or acquisition opportunities (22 percent) , and hiring talent that would have been otherwise unavailable (16 percent) . Just 4 percent of respondents haven't taken any steps in response to the economic turmoil.


Regarding staffing, 51 percent of respondents expect no change in their work forces, 35 percent plan to shed staff, and 13 percent will be hiring.


Perhaps because the financial performance in the first half of 2008 will help cancel out the scary final few months, 38 percent expect their profits to grow this year. Another 12 percent say their profits will remain stable. As I've written before, the tech sector appears to be considerably more optimistic than counterparts in industries such as manufacturing and financial services.


Sixty-five percent of respondents expect the economy in their countries to be moderately/substantially worse in 2009's first quarter. Those in Asia-Pacific were the most pessimistic (83 percent), followed by Europe (75 percent). Those in China (57 percent) and other developing markets (64 percent) were more pessimistic than their North American counterparts (54 percent). Indian respondents showed the most optimism, with 43 percent saying they expected the economy to be worse in Q1.


The largest percentage of respondents, 51 percent, expect the economy to begin improving by the end of 2009. A worrisome 46 percent think it will be 2010 or later before financial conditions begin to look up.


Although I won't detail them here (more the territory of fellow IT Business Edge blogger Lora Bentley), the article also includes some interesting findings on respondents' feelings about government regulation. In a nutshell, only tiny percentages of respondents don't want increased regulation of the financial industry or governments taking a more active role in fiscal/monetary policy.