Across the world, CEOs foresee a gloomy economic outlook that can last through the end of 2023 or to mid-2024 in the regions where they operate in a sign of financial doomsaying.

The global economic downturn and regional recessions, inflation, continued disruptions from the pandemic in Asia, global geopolitical instability, supply chain issues, and labour shortages are the high-impact events that CEOs and C-suite executives see as challenging their organisations this year, a study by Conference Board 2023 C-Suite Outlook said.

This survey was conducted between mid-November and mid-December 2022, on 1,131 C-suite executives, including 670 CEOs across the globe, who said corporate honchos are focusing on driving revenue and profit growth through digital transformations and business model innovations.

A peek into what’s in their mind

The global economy is on a downward trend, weakened by high inflation, tighter monetary policy, tight labor markets, mild recessions in several economies, weakness in China’s growth, and pandemic-driven economic scarring.

Amid the fear of recession, the study anticipates real GDP growth of 2.1% in 2023—a pace that does not formally constitute a global downturn. This observation comes amid the anticipation of regional recessions which are highly likely in the US, Europe, and some of the largest Latin American economies. Russia and Ukraine may remain in recession longer.

In the larger picture, CEOs view economic downturn/recession, inflation, the effects of Covid-19, geopolitical instability, supply chain disruptions, and labor shortages as the major disruptors to their business operations in the new year.

The majority of them in Europe cite the war in Ukraine, which has disrupted local economies through soaring energy costs, double-digit inflation, plummeting consumer confidence, and reduced business activity, as a top five external impact issue. CEOs in China see US-China tensions as a major disruptor.

At the same time, there is little consensus among CEOs on when their regions are likely to achieve faster GDP growth.

Concern over the impact of higher borrowing costs, barely on the CEO radar a year earlier, has risen considerably globally, especially among CEOs in the US. It is less of a concern in Europe.

Although the European Central Bank has tightened its monetary policy to curb inflation, its monetary policy is less loose than that of the US Fed. This, coupled with positive post pandemic balance sheets for many companies, explains why higher borrowing costs are not seen as a pressing issue in the region.

Recession responses

Concerns about labour shortages and talent retention persist amid the weak outlook, underscoring how the current global slowdown and expected regional recessions may be different than previous ones.

They feel companies should prepare for higher wage and benefit costs in 2023. Lingering pandemic effects are negatively affecting labour force participation around the world, due to ongoing mobility restrictions, fear factor, or people out of work due to having COVID-19 or caring for others with the virus. Skills mismatches are also a challenge along with strict immigration/migration policies.

They revealed a short-term plan to deal with a recession. The four broad strategies cited by them are accelerating innovation and digital transformation; pursuing new opportunities (in products/services, regions, and M&A); cutting noncore costs (general & administrative, discretionary); and revising business models (e.g., pricing strategy, risk management).

Growth in the medium term

Innovation, technology, and talent are ways to ensure growth for their business over the next two to three years, they said. CEOs in the US and Europe, expect healthy returns as valuations come down.

More CEOs expect geopolitical instability to have an impact on their businesses in 2023, compared to the previous year. CEOs in China are significantly more concerned about US-China tensions, compared to their counterparts in the US. Depending on enforcement stringency, and the extent of allied support, new US export controls on semiconductors could be debilitating to China’s electronics, auto, and capital goods sectors.

CEOs in the US and other parts of the world (except for Europe) do not list the war in Ukraine among the top five events likely to have a significant impact on their operations in 2023. Considering its disruptive impact on the global economy, are businesses underestimating the impact on global growth, trade, energy, and supply chains of the war intensifying?

When it comes to the impacts of the war in Ukraine, more than 80% of CEOs globally expect cyberattacks outside the war theater to intensify, while more than 65% believe economic sanctions will increase and global food and energy crises will worsen. The ranking of the top three impacts is consistent across all countries and regions in our survey.

Human capital management: Many companies continue to deal with the pandemic effects and erosion of the employee experience, manifesting in greater employee burnout, declining self-reported levels of mental health, lower engagement, and a rise in sick days and workplace safety incidents. To combat this, CEOs are focused on building stronger cultures of resilience, innovation, employee centricity, and inclusiveness to meet their objectives to attract and retain talent.

Stakeholder capitalism: The idea that businesses serve the long-term welfare of all their constituents, not just shareholders—appears to be on a firm footing in many companies, with customers and employees ranking ahead of investors in stakeholder prioritization for CEOs in most countries and regions in our survey.

Supply chain: CEOs globally cite supply chain disruptions as a top five high-impact issue for 2023, but it has fallen in intensity for CEOs in both the US and Europe since our January 2022 report, dropping from 3rd in 2022 to 5th in the US and 7th in Europe in 2023 amid signs of some easing as inventories return to prepandemic levels, according to the November 2022 Logistics Managers’ Index, which is a sign that supply chains are returning to normal.

Marketing and communications: Globally, CEOs place marketing and promotions in their top three investment areas to ensure medium-term growth for their organisations. About two-thirds of CEOs (65%) say they are planning to increase budgets for customer service and experience, and new customer acquisition over the next 24 months, with 58% increasing budget for new product/service development.

CEOs are generally more pessimistic than the rest of the C-suite team about organizations’ level of preparedness to handle a major crisis, such as a pandemic, recession, financial instability, or a surge in energy prices.