CoronaVirus Effect on Global Economic Sentiment

Coronavirus effect on economy | Bigsoft blogs

One year after the World Health Organization declared COVID-19 a global pandemic,1 the results of newest McKinsey Global Survey signal greater optimism about the economy and corporate prospects than respondents have expressed since the crisis began—and on a few fronts, than they have in several years.Still, weak demand continues to threaten corporate growth, and the pandemic remains the biggest risk to growth in respondents’ countries.

While the global economic 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. Sixty-nine 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 2004.3 In every region but Latin America, where executives are still more optimistic than pessimistic, a majority of respondents expect improvements in the months ahead.

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 of respondents 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.

At the company level, positive expectations are also hitting new highs (Exhibit 2). 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.

Despite the overall optimism, the COVID-19 pandemic still looms largest as a risk to economic growth in respondents’ countries. The pandemic is cited most often, followed by unemployment and domestic political conflicts, and is the most common risk in every region but Latin America and India (Exhibit 3). As in the previous survey, executives in Latin America and in Europe cite unemployment more often than their peers—and this month are followed closely by those in India—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.