For the first time in more than a year, global executives are more positive than negative about conditions in the economy. In our latest McKinsey Global Survey on economic conditions,1 respondents share brighter views about the current state of their own countries’ economies and the world economy, as well as an increasingly optimistic global outlook. While geopolitical instability and inflation still predominate as risks to both domestic and global growth, respondents note some emergent risks to growth in the world economy. Their responses also suggest an evolving perspective on the interest rate environment, with the smallest share of executives since June 2021 expecting their countries’ interest rates to increase.
Improving views on domestic conditions, with some regional differences
Overall, respondents report more positive views on their home economies than they have in the past year (Exhibit 1). Forty-eight percent say economic conditions at home have improved in the past six months, up from 40 percent last quarter.
Respondents share more positive views on their own economies, and the global economy, than they have in the past year.
At the same time, there are some notable changes and differences by region—namely, in India (Exhibit 2). Respondents there report a much more bullish view on the state of their economy than they did in March: 85 percent say conditions are better now than six months ago, versus 46 percent who said the same in March. They are also much more positive about conditions at home than peers in other geographies.
By contrast, the domestic economic outlook has held steady since the last survey, with nearly half of all respondents believing conditions will improve in the next six months. Also consistent with last quarter’s results: inflation, geopolitical instability and conflicts, and rising interest rates are still the top three risks to economic growth at home.2
Evolving views on the interest rate environment
Although interest rates remain a top three risk to growth at home, other results suggest a shift in respondents’ perceptions on the topic. For the first time since June 2021, less than half of all respondents believe their home countries’ interest rates will increase in the coming months (Exhibit 3).
While respondents in emerging economies are more likely to expect the same or lower rates than their developed-economy peers (61 percent versus 42 percent), even those in Europe and North America are less likely to expect rate increases now than they were last quarter or throughout 2022. We also asked about the likelihood that central banks will continue to raise interest rates to control inflation, and 61 percent of all executives believe it’s somewhat or very likely—even if their home countries were to enter a time of severe recession, rising financial-system stress, and increasing unemployment.
As global optimism grows, new risks surface
Executives’ views on the world economy are brightening as well, with a steadily growing share of respondents reporting improved global conditions and a positive outlook for the months ahead (Exhibit 4).
And while they continue to cite geopolitics and inflation as top risks to global growth, respondents have identified some newly emerging threats. The percentages citing income inequality and transitions of political leadership have all grown since our March survey, while the percentages concerned about financial-market volatility and inflation (which remains a top two risk) have ebbed (Exhibit 5).
For the first time, we also asked respondents about four scenarios for how the global economy and balance sheet might evolve over the long term,3 and their answers suggest a high degree of uncertainty about the economic path forward (Exhibit 6). More than 20 percent of respondents rank three of the four as most likely to occur, with the largest share (30 percent) citing “Balance sheet reset”—characterized by fiscal and monetary tightening and financial-system stress that leads to drawn-out deleveraging and a “lost decade” of growth—as the likeliest scenario. It’s followed closely by “Higher for longer” (29 percent), which involves stronger consumer demand and higher investments (both of which keep interest rates and inflation high), solid growth, and a lower value of real wealth due to inflation.
ABOUT THE AUTHORS
The survey content and analysis were developed by Jeffrey Condon, a senior knowledge expert in McKinsey’s Atlanta office; Krzysztof Kwiatkowski, a capabilities and insights expert at the Waltham Client Capabilities Hub; and Sven Smit, chair of insights and ecosystems, chair of the McKinsey Global Institute, and a senior partner in the Amsterdam office.
The authors wish to thank Jan Mischke for his contributions to this article.
This article was edited by Daniella Seiler, an executive editor in the Washington, DC, office.
Economic conditions outlook during turbulent times, March 2023
Executives’ enthusiasm for the economy rose—and then came back to earth. Meanwhile, concerns about financial-market volatility as a risk to growth have increased.
What a difference several weeks can make. For our most recent McKinsey Global Survey on economic conditions, we surveyed executives twice in March—right before the upheaval in the banking sector, starting with the closure of Silicon Valley Bank (SVB),4 and then again three weeks later.5 Executives’ outlook was positive in the initial survey, but that optimism dampened in the second survey. Still, respondents ended the month of March with a more upbeat perspective than they had shared in previous quarters.
Respondents continue to cite inflation and geopolitical instability as top threats to economic growth, though concerns about financial-market volatility rose between the two surveys. Meanwhile, the COVID-19 pandemic has all but disappeared as a perceived source of macroeconomic risk. Even respondents in Greater China,6 who have reported outsize concerns about the pandemic’s economic effects, rate it as a much lower risk than last quarter.
Economic optimism spikes, then moderates, during March
In early March, respondents reported views on the global economy that were more positive than they had been in several quarters. Forty percent said that global economic conditions had improved in the previous six months, the first time in a year that respondents were more likely to report improvements than declines. And 45 percent expected global conditions to improve in the months ahead, while only 28 percent predicted that conditions would worsen.
But by the end of the month, that optimism had tempered (Exhibit 1). Respondents are much less positive now than they were in early March about current global conditions and the global economy’s prospects—though still more upbeat than they had been in the previous quarter.
We see a similar pattern in respondents’ overall views on their home economies (Exhibit 2). The change in sentiment is especially acute in India: 46 percent of respondents in the late March survey say that conditions at home are improving, compared with 66 percent who said the same earlier that month. Likewise, respondents in North America and developing markets report declining positivity between the surveys, and they are more downbeat now than they were in December 2022. When asked about potential interest rate changes in their countries, respondents are more likely than they have been since June 2020 to expect a decrease in the months ahead, though a majority (60 percent overall) still expect an increase.
Geopolitical instability, inflation remain top concerns
When asked about risks beyond their countries’ borders, respondents have shared consistent concerns about geopolitical instability. In early March, two-thirds cited it as a risk to global growth, a share that has steadily increased since September 2022—and a similar share in the late March survey say the same.
At the same time, concerns over financial-market volatility have grown between the two surveys (Exhibit 3). Respondents are more than twice as likely (31 percent) to cite market volatility as a top global risk as they were in early March (15 percent). Our newest survey also marks the first time since March 2019—when we began asking about volatile financial markets as a specific risk—that it’s ranked within the top three risks to global growth. What’s more, respondents in the latest survey rank financial-market volatility as a top three risk to their own companies’ growth.
In their home countries, respondents continue to cite inflation most often as a risk to domestic growth. It’s been the top-ranked risk overall since June 2022, and in the most recent survey is cited most often in every region. This is true even in Greater China, where in September and December 2022, concerns over COVID-19 still outranked inflation. Just over half of all respondents in the latest survey expect their countries’ inflation rates to rise over the next 12 months, with respondents in Greater China (74 percent) and Asia–Pacific (63 percent) the most likely to expect increasing inflation.
COVID-19 continues to recede as a major economic concern
The latest surveys also confirm that the pandemic continues to wane as a perceived risk to both macroeconomic and company growth. As a threat to global economic growth, a mere 3 percent of respondents in the late March survey consider COVID-19 to be a top risk, down from a high of 86 percent at the start of the pandemic (Exhibit 4). Of the 15 potential global risks we asked about, respondents cited the pandemic least often in both March surveys.
Even in Greater China, where respondents historically have viewed the pandemic as an outsize risk compared with other locations, the potential threat posed by COVID-19 appears to be on the decline. In late March, just 14 percent of respondents from that region cite the pandemic as a top domestic risk, down from 44 percent in December and 48 percent in September. And most recently, just over half (51 percent) of private-sector respondents in the region say COVID-19 plays a slight role or no role in their companies’ current planning and decision making. That’s up from 28 percent in December and 32 percent in September.
Overall, 72 percent of respondents from the late March survey say that the pandemic plays only a slight or no role in company planning and decision making, compared with 54 to 59 percent who said the same in the past four quarters.