Australian CEOs see mild downturn before return to growth

person in yellow coat standing on top of hill
  • Business leaders see ‘short and mild’ global recession over next 6-12 months
  • Majority confident of growth over next 3 years
  • Covid, supply chain, economic issues, disruptive technologies all pose challenges

Business leaders in Australia and around the world foresee a ‘short and mild’ global recession in the next 6-12 months but a large majority believe growth will return within a three-year horizon, KPMG International’s annual CEO survey finds.

Participants in the KPMG CEO 2022 Outlook, a survey of over 1,300 CEOs in 11 countries, including 50 from Australia, said the anticipated downturn would make it more difficult to rebound from pandemic-related disruption and would hinder anticipated growth. Earnings could be impacted by 10 percent or more.

A large majority of respondents both in Australia (78 percent) and internationally (75 percent) said they had taken steps to prepare for a downturn, either by implementing or planning a recruitment freeze. Most (Australia 64 percent, global 77 percent) were considering downsizing their workforce, while over 80 percent in Australia and overseas were planning, over the next 6 months, to raise their prices to cover costs.

When asked about the most immediate problem facing them, Australian CEOs’ top answer was continued covid fatigue and ongoing restrictions (18 percent) – followed by economic, supply chain and reputational risks (all 16 percent). Over the next three years, the biggest threat to growth concerned operational issues and emerging disruptive technologies – both 14 percent.

Andrew Yates, KPMG Australia CEO said: “With a global pandemic, the war in Ukraine and growing economic uncertainty, it is not surprising that CEOs’ normal optimism has taken a bit of a hit. This has been a period of turbulence and a mild recession is certainly a plausible scenario for the world economy. But it is encouraging to see that over the three-year horizon, leaders are more confident of a rebound of growth both in the global economy and their own companies.

“Australia is better placed than most countries, and so the probability of a recession here is lower than elsewhere, but there is still a risk that domestic demand contracts, rather than just grows at a slower pace. We still must see how households respond to the high inflation and interest rate environment. So far, they have held up better than consumers in other countries, but the full impact of higher mortgage costs has yet to be felt. The extent to which businesses follow through with their capital expenditure plans and the return of international students and tourists will also be important factors in boosting economic growth.”

Key issues beyond the economy

  • Companies seeing increased stakeholder demand and scrutiny on ESG issues
  • Australian CEOs ahead of the game on using company purpose effectively
  • Strong support for faster pace of inclusion, diversity and gender equity initiative.
  • Digital transformation is a key competitive issue but warnings of staff burnout
     

Aside from economic issues, three-quarters (75 percent) of Australian CEOs, a higher proportion than their global counterparts, said that they were already seeing demand for increased reporting and transparency on ESG issues from stakeholders including investors, regulators employees and customers. And 78 percent believed stakeholder scrutiny in this area this would accelerate over the next 3 years.

Over half of Australian leaders admitted they struggled to communicate their ESG performance to stakeholders effectively. One key reason could be that only 28 percent (45 percent global) said their ESG programs currently led to improved financial performance.

But Australian CEOs are ahead of the global pack on their use of company purpose, thinking on inclusion and diversity, and the benefits of gender equity, the survey found.

For company purpose, more Australian CEOs than global ranked it as important in shaping and driving action in several key areas, including: strengthening employee engagement; driving financial performance; building customer relationships; brand; and shaping capital allocation, alliances/partnerships and M&A strategy (at least 70 percent in each).

The issues of Inclusion, diversity & equity (IDE) and gender equity also found resonance locally. More Australian leaders (76 percent) than global (68 percent) believed IDE had moved too slowly in the business world, while a higher proportion argued that more gender equity in their C-suite would help achieve the company’s growth ambitions.

Digital transformation was another key issue. A large majority (88 percent Australian,72 percent global) said they had an aggressive digital investment agenda designed to get first-mover advantage, but the same percentages of respondents also warned they had to address burnout from accelerated digital transformation over last 2 years before continuing their transformation journeys.

Andrew Yates said: “It’s encouraging to see that Australian CEOs believe in the value of inclusion and diversity although other recent surveys have shown there is still a long way to go for good intentions to translate into action in terms of gender diversity and C-suite roles.

“We are seeing a clear increase in scrutiny of companies on ESG issues, although the challenge is for leaders to communicate their performance to stakeholders, especially when there is no hard financial improvement to point to. The fact that most see their digital and ESG strategic investments as inextricably linked shows how ESG is now central to company operations, even though our survey does show that some ESG plans may be paused if and when a downturn hits. It is also clear from the findings that digital transformations are people issue as much as technology issues, and companies must be careful to take everyone with them before continuing on the journey.”

Other findings

ESG:

  • Looking ahead 3 years, the biggest barrier to driving their ESG strategy was predicted to be ‘lack of budget for ESG transformation’, 24 percent of Australian CEOs said. This was the top answer.
  • More Australian (86 percent) than global leaders (74 percent) believed that major ESG global challenges, such as climate change were a long-term threat to the company’s growth.
  • A higher percentage of Australian leaders (84 percent) than global (71 percent) said that as trust in governments declined, people will look to businesses to fill the gap on societal issues.
  • Most CEOs said their digital and ESG investments were ‘inextricably linked’.

Digital transformation:

  • A higher proportion of Australian CEOs (72 percent) than global (61 percent) said they were being held back progress on business transformation by a lack of people skills in their company to handle the strategic and operational roll-out. More local leaders also said managing cultural impact of IT transformations and making sure staff adapt and sustain the new ways of working were problematic.

Tax:

  • Three-quarters of CEOs (both locally and globally) said they felt more pressure to increase public reporting of their global tax contributions. A similar number said there was a strong link between public trust in their companies and how their tax approach mirrored their corporate values.
  • There was widespread concern over the OECD’s proposed global minimum tax rate now being addressed by national governments – 75 percent thought this could be a threat to their growth hopes over the next 3 years.