While recent elections have revived executives’ optimism in India, those in other emerging markets have concerns about economic conditions at home and their corporate prospects.
After sweeping political changes in recent elections, executives in India report dramatically renewed optimism for their country’s economic prospects, even as pessimism persists in other emerging markets. In McKinsey’s latest survey on economic conditions, many respondents believe domestic and global conditions have improved and will improve in the coming months. Yet while executives in emerging economies express hope about future conditions in the global economy, they are less optimistic than their developed-economy counterparts about their home markets. This may be due to concerns over inflation, cited as the top risk to growth in Latin America—where unemployment is also a significant issue.
Surging optimism in India
What a difference an election makes. Following the sweeping victory of Prime Minister Narendra Modi’s Bharatiya Janata Party last month, 96 percent of executives in India now expect the country’s economy will improve during the next six months—up from 67 percent who said the same just three months ago (Exhibit 1). After months of tepid (and even low) expectations for the Indian economy, three-quarters of executives there say economic conditions are better now than they were six months ago, up from 29 percent in March. We saw a similar upswing in sentiment after India’s last general election, in 2009. Less than one-fifth of respondents in the country believed that conditions had improved in the six months before that election; in June 2009, one month after polls closed, 72 percent of executives said the same.
Executives in India are positive on other fronts. Fully half of respondents expect their country’s unemployment rate will decrease in the next six months, compared with 30 percent of all respondents expecting the same. They are also less concerned about political tensions, at least as threats to near-term growth (Exhibit 2). In our March and December surveys, executives in India identified transitions of political leadership, domestic political conflicts, and insufficient government-policy support among the top risks to domestic growth. Now less than one-fifth identify any of these policy and political issues as possible risks.
It’s not all good news, however. Respondents in India most often cite inflation as a threat to domestic growth, with commodity and energy prices identified as the primary factors that make it a risk. Inflation is also top of mind in Latin America, where 53 percent of respondents say it’s a risk, compared with the global average of 21 percent. And while most executives in India expect their inflation rate will stay the same or decrease over the next six months, those in Latin America and developed Asia are the most likely to expect inflation rates in their countries will increase.
Continued confidence and regional divides
Across regions, many executives agree that economic conditions are improving and will continue to do so in the coming months. At the country level, they are twice as likely to say current conditions at home have improved than to say conditions have worsened. Looking ahead, 53 percent expect conditions will improve in the next six months. While geopolitical instability still poses the biggest threat to global growth, as it did in March, executives maintain a positive view of conditions—both current and future—in the world economy. In most geographies, respondents’ views on current global conditions have either met or surpassed their expectations from six months ago (Exhibit 3).
In their overall bullishness, executives in India stand apart from respondents in all other regions—even their peers in China, Latin America, and other emerging markets, whose responses differ notably from those in developed markets. When it comes to the global economy, executives in emerging markets are more positive about future conditions than their developed-market peers. In contrast, executives in developed markets are much more upbeat about their home economies, particularly on current conditions. Emerging-market respondents are more negative than positive, as they have been for the past few months (Exhibit 4).
Company concerns in Latin America
In Latin America, where executives are the most negative about conditions in their own economies, company-level views are downbeat as well. Compared with their peers in other regions, respondents in Latin America are the most likely to believe their companies’ profits will decrease; they are twice as likely to say so now as in December.
Only one-third of executives there expect demand for their companies’ products and services will increase, compared with 47 percent of all respondents (Exhibit 5). And along with respondents in Europe, those in Latin America are the least likely across regions to expect their companies’ workforces will grow in the coming months. More than half also expect that the unemployment rates at home will increase. These results are in stark contrast to the global responses, where executives report tempered but positive views on their companies’ prospects.