Just one quarter after geopolitical conflicts and instability overtook the COVID-19 pandemic as the leading risk to economic growth, survey respondents’ concerns over inflation now exceed their worries about the effects of geopolitical issues on their countries’ economies. In the latest McKinsey Global Survey on economic conditions, respondents also see inflation as a growing threat to the global economy and continue to view geopolitical instability and supply chain disruptions among the top threats to both global and domestic growth.
Amid this disruption-crowded environment, respondents report uneasy views on economic conditions, both globally and in their respective countries. For the fourth quarter in a row, respondents to our latest survey—conducted the first full week in June—are less likely than those in the previous survey to say economic conditions have improved. Overall, pessimism about the second half of 2022 is on par with the early months of the pandemic in 2020. Exceptionally, however, the mood is much more positive among respondents in Asia–Pacific and Greater China, who report improvements and continue to be upbeat about their economic prospects.
Inflation, geopolitical, and supply chain concerns all loom large
Respondents’ views of the top threats to their home economies have shifted since March 2022,
and they now most often cite inflation as a risk over the next year (Exhibit 1). While geopolitical conflicts were top of mind in the previous quarter’s survey, which ran four days after Russia had invaded Ukraine, respondents are now nearly half as likely to cite geopolitical issues as a risk to their countries’ economies. Geopolitical conflicts and instability remain an outsize concern in Europe, where 50 percent list it among their top risks. But even in Europe, inflation is the risk cited most often—as it is in every geography except Greater China.
There, respondents most often point to the COVID-19 pandemic.
Exhibit 1
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McKinsey_Website_Accessibility@mckinsey.comGeopolitical instability remains the top-cited threat to the global economy (see sidebar, “Respondents predict extended disruption related to the Ukraine invasion”), as it was in the March survey, and inflation has overtaken volatile energy prices to become the second-most-cited concern. Supply chain disruptions round out the top three global risks, followed by volatile energy prices and rising interest rates. For the second survey in a row, more than three-quarters of respondents expect interest rates in their countries to increase in the next six months.
Respondents also see supply chain disruptions as major obstacles for their companies’ growth. In the latest survey, that answer choice has overtaken geopolitical instability as the most-cited risk to companies’ growth. These supply chain concerns—and those about the changing trade environment and relationships—are much more common among respondents who say at least some of their companies’ essential materials
are produced in China than among those who don’t source materials from China.
Respondents are largely pessimistic about the global economy but more positive about their countries’ prospects
Nearly two-thirds of respondents say the global economy is worse now than it was six months ago—the highest share to say so since the June 2020 survey. That appraisal is much more negative than what respondents predicted six months ago: in our December 2021 survey, nearly six in ten respondents expected to see economic improvements over that time period. At the same time, respondents’ takes on both current and future conditions in the global economy have grown progressively gloomier since June 2021, with half of all respondents expecting conditions to worsen in the second half of 2022 (Exhibit 2).
Exhibit 2
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McKinsey_Website_Accessibility@mckinsey.comThe findings about respondents’ respective countries also have grown more somber over the past year (Exhibit 3). For the first time since the September 2020 survey, respondents are more likely to say economic conditions in their countries have worsened than improved over the past six months. Views vary widely by region, however. In both Asia–Pacific and Greater China, about two-thirds of respondents say their countries’ economies have improved. The responses from Europe and North America are much more downcast: just one in five respondents in each region report recent improvements in their economies.
Exhibit 3
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McKinsey_Website_Accessibility@mckinsey.comThat said, respondents’ expectations for their home countries over the next six months are somewhat more hopeful than their outlook on the global economy: 39 percent expect their economies to improve in the near future. However, this is the first survey since the one in September 2020 in which less than half of respondents expect improvements in their home economies. Now, they are just as likely to expect economic conditions will improve as decline.
Most respondents in Asia–Pacific and Greater China expect their economies to improve in the second half of 2022, although overall optimism has declined since the previous survey (Exhibit 4). Over the same time period, respondents in Europe and North America have become much more pessimistic about the future.
Exhibit 4
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ABOUT THE AUTHORS
The survey content and analysis were developed by Krzysztof Kwiatkowski and Vivien Singer, capabilities and insights experts in McKinsey’s Waltham, Massachusetts, office, and Sven Smit, the chair and a director of the McKinsey Global Institute and a senior partner in the Amsterdam office.
This article was edited by Heather Hanselman, an editor in the Atlanta office.
Worries about geopolitical conflicts, among other risks to growth, now exceed executives’ concerns about the COVID-19 pandemic. Overall economic optimism continues to decline.
Geopolitical instability is now cited as the top risk to both global and domestic economies in our latest McKinsey Global Survey on economic conditions.
That’s the consensus among executives worldwide, who have cited the COVID-19 pandemic as a leading risk to growth for the past two years.
Our quarterly survey was launched four days after the invasion of Ukraine, and executives express uncertainty and concern about its impact on the economy. About three-quarters of respondents cite geopolitical conflicts as a top risk to global growth in the near term, up from one-third who said so in the previous quarter. Meanwhile, the share of respondents citing the pandemic as a top risk fell from 57 to 12 percent, as much larger percentages now identify energy prices and inflation as threats to the global economy.
At the same time, overall sentiment about the economy remains largely positive, but it continues to trend downward. For the third quarter in a row, respondents are less likely than in the previous one to report that economic conditions in their respective countries and across the globe are improving. They are also less likely to believe that either global or domestic conditions will improve in the months ahead. The near-term economic outlook is especially gloomy among respondents in developed economies, whose views are increasingly downbeat compared with their emerging-economy peers.
Geopolitical conflict overshadows all other risks to growth
According to the survey results, executives expect that the economic effects of the invasion of Ukraine will be strongly felt. Seventy-six percent of all respondents cite geopolitical instability and/or conflicts as a risk to global economic growth over the next 12 months, and 57 percent cite it as a threat to growth in their home economies (Exhibit 1).
Exhibit 1
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McKinsey_Website_Accessibility@mckinsey.comExecutives see geopolitical instability as the top risk to both global and domestic growth in every geography except Greater China,
where respondents most often cite the COVID-19 pandemic. Thirty-nine percent of respondents there say the pandemic is a threat to domestic growth, compared with 5 percent of all other respondents.
Nearly two years after COVID-19 was declared a global pandemic,
this is the first time our respondents have not cited the pandemic as the top risk to growth in the global economy (Exhibit 2).
Exhibit 2
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McKinsey_Website_Accessibility@mckinsey.comOverall sentiment continues to wane
While respondents tend to report improving—rather than worsening—conditions in the global economy and in their home countries, the percentages of executives saying so continue to decrease over time (Exhibit 3).
Exhibit 3
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McKinsey_Website_Accessibility@mckinsey.comTheir outlook for the next six months is even more downbeat, especially for the global economy (Exhibit 4). Forty-three percent of respondents believe the global economy will improve over the next six months, a share that’s nearly equal to the 40 percent who think conditions will worsen. This month’s result also marks the first time since July 2020 that less than a majority of respondents feel optimistic about the global economy’s prospects.
Exhibit 4
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McKinsey_Website_Accessibility@mckinsey.comAnd while executives overwhelmingly cite geopolitical conflicts as a risk to economic growth, rising interest rates are a growing concern as well. Interest rates are among the top five risks to near-term growth in the global economy (for the second survey in a row) and in respondents’ home countries—and the share of respondents expecting a significant increase in near-term interest rates has more than doubled since the previous quarter. Across regions, executives in North America and in Europe are the most likely to expect interest rates to rise rather than hold steady or decrease.
The divide between developed and emerging economies grows
For the third quarter in a row, the survey results suggest a widening gap in optimism between developed-economy and emerging-economy respondents. In developed economies—where respondents cite geopolitical conflicts as a risk to growth more often than their peers do—sentiment is declining at a faster rate than in emerging economies. Only 52 percent of developed-economy respondents, versus 73 percent of their emerging-economy peers, say economic conditions at home have improved in recent months. In our two previous surveys, the gap was much smaller (Exhibit 5).
Exhibit 5
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McKinsey_Website_Accessibility@mckinsey.comThis trend is also evident in respondents’ views on the global economy. This month, just 39 percent of developed-economy respondents say global economic conditions have improved in recent months, compared with 68 percent in emerging economies. Respondents in developed economies also report a more downbeat outlook for the coming months: only 36 percent believe conditions in the global economy will improve in the near term, versus 55 percent of their emerging-economy peers.
Download Economic conditions outlook, March 2022 (PDF–422 KB).