A significant majority of CEOs are worried about an upcoming potential recession, while many are also worried about the issue of margin compression, according to the latest survey by business research firm The Conference Board.
CEO confidence is seeing a “significant drop” owing to various factors like heightened geopolitical risks, renewed supply chain disruptions, high energy prices, the war in Ukraine, and COVID-19 lockdowns in China that are putting “downward pressure” on economic growth. Together with restrictive fiscal and monetary policies, these factors are fueling “recession expectations,” said the report.
“In the U.S., the Measure of CEO Confidence fell to 42, levels not seen since the start of COVID-19, while confidence levels in Europe dropped to 37. At 34, confidence levels were lowest among CEOs of Western and non-Chinese multinational companies in China, where the measure was taken for the first time. A reading below 50 denotes more negative than positive responses,” the report said.
As far as The Conference Board is concerned, a global recession is not its “base case.” Instead, a short period of stagflation, either across the world or in a few major economies, has a “greater likelihood” than a recession during the next 18 months, the organization said.
It is expecting global GDP to grow by 2.9 percent in 2022 and 2.3 percent in 2023. However, the firm warns that a single extreme event or a combination of several smaller unfavorable events could “thrust the world back into recession.”
Businesses are also worried about inflation leading to margin compression, a situation when input costs rise faster than a product’s sales price.
More than 51 percent of CEOs said they were managing inflation by passing price increases downstream; 47.1 percent of CEOs are cutting costs, 36.3 percent are absorbing input price increases into their profit margins, 29.8 percent are looking for alternative raw inputs, and 22.9 percent are changing suppliers.
Concerns about a recession have also been raised by some major investment banks. Strategists at JP Morgan are predicting the chances of a recession in the United States are 85 percent and in the European Union are 80 percent. Wells Fargo estimates the country to be in a “mild recession” by the middle of next year.
Frank Sorrentino, CEO of ConnectOne Bank, a New Jersey-based lender, has an opposing opinion and is quite confident about the strength of the American economy. “Businesses still see a good economic picture even though there is this backdrop of negative news,” Sorrentino told CNN.
“Unlike in 2008 and prior recessions, there is still a strong labor market. Folks are saying maybe this is not going to be so bad … And corporate balance sheets have never looked this good before prior recessions,” he said.
