Things are bad, but not as bad – business leaders are developing a more optimistic outlook, but with second wave concerns that may quickly shift

13 August, 2020

There was a more optimistic outlook among business leaders in the latest third edition of The Economist Intelligence Unit’s Global Business Barometer (GBB), based on a survey fielded in June and which tracked improvements in sentiment as global executives started thinking about recovery.

The latest results show sentiment is improving once again but remaining firmly in the negative, that is with the exception of China which in this edition records the first positive barometer reading. The three-month outlook for the Chinese economy among China-based executives tipped into “somewhat better” in June, though only just at +2.0. This is in stark contrast to the previous edition when the outlook there soured by -21.9, by far the most among the twelve main economies surveyed in the report.

On a global level, the three-month outlook for the economy among all survey respondents scored -16.8 (the barometer ranges from -50 to +50), moving the needle into the “somewhat worse” category after being in the “much worse” category in the first two editions with a score of -27.7 in the previous edition.

Latin America leads the way, registering an 18.5 point increase – nearly four points higher than the next region, Asia Pacific, which increased by 14.8 points. The two regions were also among the biggest gainers across the five other main areas of the barometer. Executives in Europe are generally much more optimistic about the economic outlook than in the previous edition, with their scores improving by 11.5 points from -30.6 to -19.1 over the month.

Sentiment about the global economy in North America barely budged, moving up just 1.5 points (from -26.0 in May to -24.5 in June). The readings were slightly more encouraging on the regional and country-level economic outlooks compared with May, but North America is nevertheless the most pessimistic region in both these areas, unsurprising given the recent spikes in Covid-19 cases at this time.

Between the first and second editions in April and May there was a pronounced dip in sentiment among executives across the key industries surveyed, particularly regarding revenue growth and profitability.

In April, the readings were under -10 and nearing 0—or no change—in some sectors, including financial services and pharmaceuticals. By May, as the extent and impact of the pandemic had become clearer, they had fallen by an average of -18.7 points (profitability) and -16.9 points (revenue growth). Manufacturing moved into “much worse” territory on both metrics, and financial services and retail and e-commerce were not far behind.

The rebound in sentiment in June, while short of matching the depth of the April-May drop, was significant nonetheless. On average, scores across all industries were up by 15.7 points. Healthcare improved by 23.3 points on the outlook for profitability and became the first positive industry in that area with a reading of 1.9. Meanwhile the sector’s global sentiment on revenue growth is a shade away from 0 at -0.5.

Regarding profitability, financial services saw an even larger improvement of 24.6 points from June, though that was only enough to drag it to a clean 0 reading, meaning no change is expected over the next three months.

On the other end of the spectrum, the public sector and manufacturing industry remain the most pessimistic, although sentiment did rise in both. The global manufacturing sector’s outlook for profitability was up by 10.4 points in June, reaching -17.4, but its outlook for revenue growth increased by only 6.6 points to -20.5.

The report highlights that “many companies now realise just how unprepared they were for a situation like this” and in this latest edition an additional question was asked regarding what business leaders believe are the greatest opportunities for their companies to emerge more resilient as a result of covid-19.

Among an offering of 14 options, “greater digital agility” (50.1%) topped the list followed by “better customer experience” (45.0%) “more innovative offerings” (42.0%), “more informed strategic planning (beyond growth)” (39.0%), “more productive work environments” (38.1%) and “better business continuity plans” (37.6%).

A global pandemic was not an unknown risk prior to Covid-19 but preparation was limited. The report findings highlight a general consensus of feeling on the adoption of technological based solutions. “If the lesson executives and political leaders take away from this pandemic is that digital is there to save us from insufficient planning then the economic impact of the next crisis might very well be shaped like an ‘I’,” it says.

The shifting optimism is noteworthy, but business leaders remain concerned about their own countries' economic outlook for the next three months with only 8.1% of respondents strongly agreeing that their country is ready to open and 6.7% strongly agreeing their company is ready to return to normal operations as it had done before the pandemic.

The report highlights that these figures “are chilling whether you read them as recognition of the scale and scope of the problem or an indictment of global or country-level responses to covid-19 (or some combination of the two)”. It acknowledges that before barometer scores can improve, “more leaders and policymakers around the world will need to demonstrate to everyone that they can be more effective in containing the virus”.