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Execs more pessimistic than a month ago: McKinsey

Source: PTI
December 23, 2008 14:33 IST
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Executives have become markedly more pessimistic about their companies' prospects over the past one month and their views about their countries' economies have grown even more gloomy, a new survey shows.

The survey, by McKinsey Quarterly between December 2 and 8, shows that compared with the situation one month earlier, twice as many executives now expect their companies' profits to fall next year and more than half expect deflation in their countries in the first quarter. But small private companies are still doing better, it finds.

A downturn, it says, appears to have begun hitting developed markets harder over the month, with much higher proportions of executives in those countries saying conditions have got 'substantially worse'.

Nearly 70 per cent of respondents say they have seen their firms' profits fall as a result of the global turmoil. Half expect profits to fall in 2009.

The proportion of executives saying their companies are planning to decrease the size of their workforce in the near term has risen to 44 per cent from 35 per cent in the past month, the survey found.

Nevertheless, some companies -- though fewer than a month ago -- are still maintaining stability and even finding opportunity in these markets.

Smaller and privately-held companies still look more nimble and stable than larger and public ones, it finds.

And 13 per cent of companies are contemplating positive strategic moves (such as introducing new products or services to meet new customer needs) and not contemplating defensive strategies (such as cutting back on capital spending).

Respondents in this category of firms are more likely than others to be in North America or at North American companies.

That pattern, says the Quarterly, reinforces the finding that executives in North America remain less troubled about their countries' economies than in other developed markets.

In the December survey by the Quarterly, 69 per cent of respondents said their companies' profits had decreased over the past six months as a result of the economic turmoil.

Executives in the euro zone are least likely to say so, and those in China are most likely to have taken a hit.

Notably, many companies were already weakened six months ago, the Quarterly said, citing responses to a similar question in June.

In that survey, 57 per cent of respondents said the US economic slowdown had had a negative effect on their companies.

Nearly two-thirds of respondents to the December survey say the main cause of their decreased profits is lower spending by consumers or other businesses.

Interestingly, however, the magazine says most companies did not try to encourage customer spending with price cuts: 55 per cent say their companies have held prices steady since early September, and 18 per cent have raised them.

China, it says, is different; there 40 per cent of executives say their companies have lowered prices, though, the Quarterly says, the data don't show whether that change is a response to lowered profits or a cause of it.

Looking ahead, executives appear to expect more of a link between keeping prices steady in the first half of 2009 and earning higher profits.

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