Economic conditions outlook, December 2021
Executive sentiment ends the year on a generally positive note, with most survey respondents expecting 2022 to bring better economic conditions despite heightened risks from the pandemic and inflation.
Respondents to the latest McKinsey Global Survey on the economy end a largely optimistic year with mostly positive assessments of current conditions as well as expectations for 2022.1 These relatively upbeat outlooks, both for the global economy and for respondents’ countries, come despite a resurgence in concerns about the state of the COVID-19 pandemic: countries across Europe and North America had been reporting rising case numbers since early October, and WHO declared the Omicron variant to be one of concern just days before the survey launched. Respondents—particularly those in Latin America and North America—also see inflation as a pressing economic threat, along with rising interest rates. Nearly two-thirds of respondents expect increasing rates in their countries in the first half of 2022—the largest share we’ve seen to date in our surveys.
The year ends with positive sentiments but less optimism than midyear
A majority of respondents say conditions in the global economy are better than they were six months ago, as has been true throughout 2021. The current share, 60 percent, is much larger than the 43 percent who reported improved conditions one year ago, though executives’ positivity has tempered since June (Exhibit 1). Respondents’ assessments of their countries’ economies tell a similar story. Sixty-two percent say country conditions are better than they were six months ago, up from 49 percent who said at the end of 2020 that their economies had improved.
Respondents in India, Greater China,2 and Asia–Pacific were the most likely to express positive views on the trajectory of domestic conditions, with at least three-quarters of respondents in each location reporting improvements compared with six months ago. By contrast, less than half of respondents in Latin America and other developing markets3 say their countries’ economies have improved (Exhibit 2). In Asia–Pacific, that is a dramatic change from the September survey, when respondents there were the most negative of any region. Conversely, respondents in Europe have become much less upbeat since September.
Respondents’ views trace a similar arc when they look ahead to the next six months. Most (57 percent) expect both the global economy and their countries’ economies to improve, though this proportion has declined since the summer (Exhibit 3). The shares of respondents predicting economic improvements, both globally and domestically, are similar in size to those in the December 2020 survey who expected improvement. As is true with current views on domestic conditions, respondents in India, Greater China, and Asia–Pacific are the most optimistic: more than three-quarters in each of those locations predict improvements in their countries. Just 26 percent in Latin America say the same.
Respondents’ expectations for their own companies, too, are still largely positive even after trending downward since the summer. Sixty-four percent expect customer demand to increase in the next six months, down from 74 percent in the June survey. Nearly two-thirds of respondents expect profits to increase, compared with 74 percent in June and September.
Renewed concerns about COVID-19 as an economic threat
The COVID-19 pandemic remains the most-cited risk to the global economy over the next 12 months, as it has been since WHO declared the outbreak a pandemic in March 2020. In a change from the October survey, respondents have once again cited the pandemic as a risk to domestic growth more than any other factor, as they have since early 2020. In October, before the Omicron variant emerged, supply-chain challenges briefly replaced the pandemic as the top risk.
The latest survey also asked executives to choose the likeliest of nine scenarios for the pandemic’s economic and health impact, both globally and in respondents’ countries. Compared with the October survey, a larger share selected global and domestic scenarios with recurrences of the COVID-19 virus than scenarios with effective control of the virus’s spread.
Respondents also commonly express concerns about inflation. For the first time since June 2012, when we began asking about inflation as a risk to global growth, respondents selected it as one of the top two most-cited risks. Inflation also ranks second, behind the pandemic, as a risk to domestic growth. Respondents in Latin America were most apt to call inflation a threat to domestic growth, as in October. Inflation has also become the primary concern of those in North America and developing markets (Exhibit 4). These concerns mark a striking change from one year ago, when geopolitical instability and high levels of national debt loomed as the second-most-cited threats to global and domestic growth, respectively, behind the pandemic.
Respondents also see rising interest rates as an economic threat in the months ahead. For the first time since December 2018, rising interest rates are one of the five most-cited concerns for the global economy. Nearly two-thirds of respondents expect increasing rates in their countries in the next six months—the largest share ever captured in the survey, which first asked about interest rates in December 2016. Respondents in North America and Europe are much more likely now than in September to expect rising rates, whereas those in Greater China are now less likely to predict an increase (Exhibit 5).
Download Economic conditions outlook, December 2021 (PDF–740 KB).
This article was edited by Heather Hanselman, an associate editor in the Atlanta office.
Economic conditions outlook, September 2021
Executives’ sentiment on economic conditions continues to be positive, even as concerns mount—yet again—over the pandemic’s threat to growth.
Eighteen months into the COVID-19 pandemic, executives’ responses to our latest McKinsey Global Survey suggest that they believe the economy is on track toward a recovery.4 Throughout 2021, their views have, on average, been consistently positive: the economy is improving, and the future is brighter still. Compared with one year ago, respondents are more than twice as likely to say economic conditions in their home countries are better now than they were six months ago.
Yet with the Delta variant affecting so many parts of the world, worries over the pandemic’s effects on the economy have resurfaced—just one quarter after a historically low share of respondents cited it as a risk to domestic economic growth. Respondents are also more likely to identify supply-chain disruptions and inflation as risks. Compared with respondents in emerging economies, their peers in developed economies more often cite all three of these issues as threats to growth. They are also generally less upbeat about the economy and about their own companies’ prospects in the months ahead.5
Overall sentiment is consistently positive
Respondents in our latest survey continue to report largely positive views on the economy, at home and globally. Although after several consecutive surveys showing increasing confidence, the shares reporting improvements did not grow since last quarter (Exhibit 1). Sixty-seven percent of all respondents say conditions in their own economies have improved, down from 73 percent in June.
Across geographies, majorities of respondents in every region but Asia–Pacific (where views are much more downbeat now than in June) say economic conditions in their home countries have improved in the past six months (Exhibit 2). Most notably since last quarter: sentiments in India have bounced back dramatically. Eighty-five percent of executives there now report improvements in their economy, up from 33 percent who said so previously. And while respondents in North America are less bullish than they were in June, two-thirds of respondents there still say conditions are better now than six months ago.
Meanwhile, expectations for improved economic conditions are holding steady, or even declining. Respondents are just as likely as in our July survey (71 percent) to predict that conditions in the global economy will improve in the next six months, down from an all-time high of 81 percent who said so in the previous quarter.6 When asked about their countries’ economic prospects, 65 percent of respondents now say they expect improvements in their home economies, down from a range of 73 percent to 79 percent who have said so since March 2021. In some regions (namely, Europe and North America), views on the economy’s prospects are less buoyant than views on its present state. Fifty-one percent of respondents in North America believe economic conditions at home will improve in the next six months, compared with 66 percent who report improvements in the past six months.
The economic risk of the COVID-19 pandemic resurfaces
Respondents increasingly see the COVID-19 pandemic as a threat to future economic growth in their countries. Last quarter, just 36 percent cited the pandemic as a risk to domestic growth over the next year—the smallest share to say so since we began asking in March 2020. Now 49 percent of respondents say the same, up from 42 percent in our July survey.
The pandemic is followed by supply-chain disruptions and inflation, which were also among the top three risks to domestic growth in the past two surveys. By region, the pandemic is the top risk to growth in every region except Latin America and cited most often by those in developing markets and Asia–Pacific (Exhibit 3).
The pandemic is now considered a more acute risk to global growth as well, after the share citing it has steadily declined in the past year (Exhibit 4). It’s cited by 59 percent of all respondents as a top risk to global economic growth, followed by geopolitical instability (43 percent)—which has also risen in the ranks in the latest survey.
In developed economies, perceptions are less positive
The latest results suggest that last quarter’s outsize optimism among developed-economy respondents—who, in June, reported much more positive sentiment than their peers in emerging economies—was short lived. Now, respondents in emerging economies are again more likely to say that conditions have improved in their home economies, continuing the upward trend we’ve seen for much of the pandemic (Exhibit 5); that conditions have improved in the world economy; and that they believe domestic and global conditions will improve further in the months ahead.
This is true despite greater concerns over unemployment in emerging economies. On average, respondents still expect that a decrease in their countries’ unemployment rates is more likely than an increase.7 Yet in emerging economies, 45 percent of executives believe their unemployment rates will increase, versus 18 percent in developed economies who say so. We saw similar results in July, when emerging-economy respondents were more than twice as likely as developed-economy respondents to expect their unemployment rates to rise.
With respect to risks, the COVID-19 pandemic is also seen as a more prominent threat to growth within developed economies. Fifty-two percent of executives in those economies cite the pandemic as a risk to growth in their own countries, compared with 45 percent in emerging economies. It’s nearly double the share who said so last quarter, when only 28 percent of developed-economy respondents—versus 50 percent in emerging economies—cited the pandemic.
Finally, respondents in developed economies are less bullish than others on the company front (Exhibit 6). They are much less likely than their emerging-economy peers to expect the size of their companies’ workforces to increase in the next six months, to expect an increase in demand for their companies’ products and services, and to expect an increase in company profits.
Download Economic conditions outlook, September 2021: McKinsey Global Survey results (PDF–1.07 MB).
This article was edited by Daniella Seiler, a senior editor in the New York office.
Economic conditions outlook, June 2021
Executives’ overall views on the economy continue to improve. As more and more economies are recovering from the pandemic, perceptions of potential risks are evolving.
Positive momentum continues to build in many respondents’ home countries and in the world economy, according to our latest McKinsey Global Survey on economic conditions.8 Yet by geography, the results reveal starkly different sentiments between developed economies (where more countries are experiencing or anticipating a recovery) and emerging economies (where several regions face ongoing public-health challenges).9 Executives in developed economies now report much more positive views than their counterparts—a reversal from the first year of the pandemic—as well as new threats to growth. As the pandemic recedes as an outsize and largely universal risk to the economy, respondents believe that inflation and supply-chain disruptions are emergent.
Still, executives in all geographies continue to report an increasingly positive outlook on the economy and believe that their companies’ prospects have never been brighter.
The risk landscape shifts, and varies by region
With the second pandemic year well underway, the economic recovery is gaining momentum—or is expected to—in many parts of the world. But the latest survey results suggest that new pain points are emerging (Exhibit 1).
The COVID-19 pandemic still tops the list of risks to economic growth in respondents’ countries, but the share of executives saying so has declined significantly. Compared with April, respondents in developed economies also consider the pandemic a much less acute concern. Twenty-eight percent of them cite the pandemic as a risk to domestic growth, compared with half of their emerging-economy peers. In the previous survey, 65 percent in developed economies identified the pandemic as a risk to their countries’ growth.
With the economic recovery gaining momentum in different parts of the world, more respondents are citing risks to growth other than the pandemic.
Meanwhile, the shares citing inflation—the second-most-common risk, identified nearly twice as often as in April—and supply-chain disruptions, have increased. Inflation has also risen in the ranks as a risk to growth in the global economy. It is now cited by 28 percent of respondents, up from 12 percent in March and 8 percent in December 2020—though on average, responses show that the pandemic remains a much bigger threat to global growth than anything else. At the same time, respondents say supply-chain disruptions pose a greater risk to their companies’ growth than in prior surveys (Exhibit 2). These disruptions now tie with weak customer demand as the most-common risk to company growth, cited by 28 percent—and up from 16 percent to 19 percent earlier this year.
By region, executives’ views on the biggest risks to growth at home have also shifted. In North America, respondents most often cite inflation as a risk to growth (45 percent say so), followed by supply-chain disruptions, domestic political conflicts, and rising taxes. And in Latin America, respondents cite domestic political conflicts more than the pandemic (43 percent, versus 32 percent).
While unemployment concerns are ebbing on average—even in Europe, where since September 2020 respondents have been much more likely than others to expect rising unemployment—the picture is more mixed in a few geographies. Respondents in Asia–Pacific, India, and Latin America are nearly evenly split between those who expect the unemployment rates in their countries to increase and to decrease.
Executives also believe that interest rates are poised to rise. Just over half of all respondents believe that their countries’ interest rates will increase in the next six months, up from 38 percent in the previous quarter. But respondents’ views vary significantly by region. In North America, 70 percent expect rising interest rates, followed by their peers in Latin America (64 percent), while in India, only 22 percent say the same.
Economic progress continues at home in most geographies—and in the global economy
On average, and everywhere but India and developing markets (including the Middle East, North Africa, South Asia, and sub-Saharan Africa), executives’ sentiment about their home economies continues to brighten. Seventy-three percent of all respondents say that conditions in their own economies are better now than they were six months ago, up from 53 percent in the previous quarter, which marked the first time in three years that a majority of respondents reported improving conditions at home.
In many regions, majorities of respondents (and larger shares than in March) say their home economies have improved in recent months—most notably in Europe, where respondents are nearly three times as likely as in March to report improvements (Exhibit 3). By contrast, one-third of executives in India report improved conditions, down from 90 percent who said so last quarter. In developing markets, 40 percent of respondents say their home economies have improved, while 55 percent report worsening conditions.
Likewise, respondents report significant improvements in the world economy, with 70 percent saying global economic conditions are better now than they were six months ago—the largest share to say so since we began asking the question more than ten years ago. And while emerging-economy respondents have been much more positive about the global economy than their developed-economy peers throughout the pandemic, their views are now nearly the same (Exhibit 4).
Executives are more optimistic than ever
When asked about the months ahead, respondents report an even more positive outlook. Seventy-nine percent expect conditions in their home countries to improve in the next six months, and a majority of respondents in each region—even in India and other developing markets—expect improvements. Their global outlook is even more positive, and increasingly so, with 81 percent predicting improvements in the months ahead (Exhibit 5).
In another sign of optimism, respondents have chosen a more growth-oriented scenario as the likeliest outcome for their own economies—and compared with April, all three of the scenarios involve effective control of COVID-19, rather than recurrences of or failures to contain the virus (Exhibit 6).
We asked about nine scenarios on the pandemic’s economic impact, and for the first time since July 2020, A3 (characterized by containment of the virus’s public-health impacts and a strong growth rebound and recovery) is cited most often—by 25 percent of respondents, up from 17 percent who said so in April. A3 replaces A1 (localized recurrences of the virus’s impact on health and slower near-term growth) as the most likely scenario. Only 19 percent of respondents now rank A1 as most likely, down from 29 percent previously.
Finally, respondents say that their own companies’ prospects continue to improve. An increasing share expect that their workforce sizes will grow in the next few months, while 74 percent expect that company profits and demand for their companies’ offerings will increase in the next six months. On the demand front, this is the largest share to predict an increase since we began asking the question in April 2009.
Download Economic conditions outlook, June 2021: McKinsey Global Survey results (PDF–696 KB).
This article was edited by Daniella Seiler, a senior editor in the New York office.
Economic conditions outlook, March 2021
In a new global survey, executives see positive momentum building in the economy. But the pandemic still persists as an outsize risk to growth.
One year after the World Health Organization declared COVID-19 a global pandemic,10 the results of our newest McKinsey Global Survey signal greater optimism about the economy than respondents have expressed since the crisis began—and on a few fronts, than they have in several years.11 Fifty-three percent of executives say economic conditions in their home countries have improved in the past six months—the first time a majority has said so in three years. Their outlook on the economy’s future is even more positive, with an all-time record share of respondents predicting improvements in their countries’ economies over the next six months.
As expectations brighten, the newest results also offer some clues on what the recovery could look like—or, at least, suggest that most companies will return to full operations later in 2021. At the companies that are fully operational now, executives say their ways of working have already changed in many respects and that these changes seem to have stuck. Still, weak demand continues to threaten corporate growth, and the pandemic remains the biggest risk to overall economic growth, both global and domestic.
A rise in economic optimism
Executives’ good feelings about the economy continue to grow, according to our latest survey. Half of all respondents believe that current conditions in the global economy are better now than they were six months ago (up from 43 percent in the previous quarter), and 53 percent say the same of conditions in their home countries (Exhibit 1)—the first time a majority has said so since March 2018.
Among geographies, executives in India and in Greater China remain the most positive about recent developments in their home economies—and those in Europe, the least so—which was also the case in December 2020 (Exhibit 2). The biggest improvement is in North America, where 59 percent of respondents now report better conditions at home, versus 39 percent in December. By contrast, their peers in Latin America are much likelier to report economic declines than they were previously.
Expectations for the future are even more upbeat. While the global outlook has wavered in recent months, respondents are more optimistic now about the world economy’s prospects than they’ve been at any other point during the crisis: 69 percent believe global economic conditions will improve, up from 56 percent in the previous survey. When asked about their countries’ economies, nearly three-quarters of executives expect improved conditions in the next six months, up from 56 percent in January—the highest share to say so since the pandemic began and since we began asking the question, in February 2004.12
In every region but Latin America, where executives are still more optimistic than pessimistic, a majority of respondents expect improvements in the months ahead (Exhibit 3). And while emerging-economy respondents are more bullish on current conditions than their peers in developed economies—as they have been since June 2020—these groups are equally likely to report a very positive outlook on future conditions.
Unemployment concerns also seem to be subsiding, compared with the past few months when pluralities or outright majorities of respondents predicted an increasing unemployment rate at home. Now, 43 percent expect a decline while 38 percent expect an increase, though there are notable differences by region. A majority of respondents in Europe still anticipate rising unemployment (which was true in the past two surveys), while those in North America are the most likely of their peers to expect a decrease in unemployment: 69 percent say so, while only 16 percent in the region predict an increase.
How the corporate recovery is taking shape
At the company level, positive expectations are also hitting new highs (Exhibit 4). Sixty-three percent of executives believe that demand for their companies’ products and services will increase in the months ahead, versus 39 percent who said the same one year ago, while 65 percent expect their companies’ profits will increase—the largest share to say so in three years. Workforce expectations remain stable, with a plurality of respondents saying their head counts will stay the same as they have throughout the pandemic. Thirty-seven percent, however, expect their workforce size to increase—the largest share to say so since before the pandemic.
While the share of respondents whose companies are fully operational again has grown in the past three quarters, most continue to say that they are not yet there. And, as in June 2020, when we first asked this question, the most common time frame for a return to full operations is seven to 12 months. During this time, we’ve also seen that respondents in developed economies are much more likely than their emerging-economy counterparts to say that they’re fully operational again, or that their business has not been disrupted by the pandemic (Exhibit 5).
However, “fully operational” doesn’t mean that companies will be running as they did before the pandemic. Business operations have already changed in many respects. According to respondents at fully operational companies, the most significant changes they’ve made since returning are executing a larger share of their work virtually, accelerating the adoption of digital technologies, and serving a larger share of customers through digital channels. These happen to be the same top-three changes that respondents have reported since June 2020, when we first asked this question. And when asked about changing norms in specific areas of their business, executives are most likely to expect that after the recovery, the current, pandemic-era ways of working remotely, traveling for business, and using office space are the most likely to stick to some degree once the crisis is over (Exhibit 6)—though results vary by sector and by region.
Consistent risks at the global, domestic, and company levels
Despite the overall optimism, the COVID-19 pandemic still looms largest as a risk to growth. It’s the top risk to growth in the global economy, followed by geopolitical instability, which were the most common risks cited in the past two quarters. The pandemic is also cited most often as a risk to economic growth in respondents’ countries, followed by unemployment and domestic political conflicts. It’s the most common risk in every region but Latin America and India, where respondents most often cite domestic political conflicts and unemployment, respectively. Executives in Latin America and in Europe continue to cite unemployment more often than their peers, as in the previous survey, although the shares saying so have fallen since January.
For respondents’ own companies, weak demand remains the greatest threat to growth, though increasing industry competition has risen in the ranks. Across sectors, respondents in consumer packaged goods and retail are the most likely among their peers to say so: 41 percent cite it as a risk to company growth, versus 28 percent of those in all other industries.
Download Economic conditions outlook, March 2021: McKinsey Global Survey results (PDF–757 KB).