Executives maintain a positive outlook for both domestic and global growth, though geopolitical tensions in Europe herald new risks for the global economy.
(March 2014)-Concerns about geopolitical instability and its implications for global growth have surged, according to McKinsey’s latest survey on economic conditions.1 1.The online survey was in the field from March 3 to March 7, 2014, and garnered responses from 1,403 executives representing the full range of regions, industries, company sizes, functional specialties, and tenures. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP. During the week the survey was in the field, world leaders scrambled to respond to Russia’s posting of troops in Crimea, and the Crimean parliament voted to secede from the Ukraine and join Russia. Seventy percent of all respondents cite geopolitical tensions as a risk to growth in the global economy over the next year, up from 27 percent in December, as the recent turmoil in Ukraine and Russia has left executives across Europe divided.
On average, executives remain optimistic about conditions in both their home countries and the global economy, though sluggish demand still tops their list of domestic concerns. Among non-eurozone respondents in Europe,2 2.Bulgaria, Croatia, Czech Republic, Denmark, Latvia, Lithuania, Macedonia, Monaco, Norway, Poland, Romania, the Russian Federation, Scotland, Serbia and Montenegro, Sweden, Turkey, Ukraine, and the United Kingdom. however, economic expectations have taken a turn for the worse. They cite geopolitical issues most often as a risk to their countries’ domestic growth. Relative to their peers in the eurozone, they are much more negative about current conditions at home and in the world economy-and more pessimistic about economic prospects in the months ahead.
Renewed geopolitical risks
Given the degree of uncertainty in Ukraine after months of protests and political unrest, executives around the world agree that over the next 12 months, geopolitical instability will pose the biggest threat to global growth. In addition to the growing concern over geopolitics, executives also rank political conflicts and transitions higher than they did three months ago (Exhibit 1). On other top risks, executives in emerging and developed economies are divided. Those in emerging markets, for example, are more concerned than developed-market executives about inflation and volatile exchange rates.