North American business leaders more upbeat on their economies, report finds

Business executives in North America are more positive than those elsewhere about their own countries’ economic prospects, according to a report on global economic conditions released Friday. But those executives are more uneasy about the world economy than are their peers abroad, the report also found.

The quarterly review by consulting firm McKinsey showed 62 percent of North American executives believe that economic conditions at home are better than they were six months ago, up from 47 percent in March. Similarly, 54 percent expect conditions to improve in the next six months, up from 43 percent in March. Those executives are less exuberant about the world economy, with one-third saying that global conditions are better than six months ago. In March, 49 percent believed that they were better.

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Overall, executives around the world are more positive than negative about future global conditions, the report said. Still, only 32 percent of North American executives believe that global economic conditions will be better in six months, while 50 percent believe that they will stay the same. In the euro zone, 49 percent of business executives say that the global economy will improve in six months, and 37 percent that it will stay the same.

Sixty-two percent of North American respondents identified geopolitical instability as one of the biggest potential risks to the global economy in the next 12 months, compared to 38 percent in March, according to the survey. Those executives see risks as political unrest heightens, especially in the Middle East and North Africa region. Indeed, increasing shares of respondents say that over the next year geopolitical instability will threaten global growth, the report found.

When asked about the domestic economy, North American executives highlighted political conflicts and low consumer demand as the biggest potential risks. But they were more optimistic about their economies than others were about conditions in their nations. Forty percent of them said they expect unemployment rates to fall over the next six months, compared with 20 percent of total respondents around the world.

Respondents are also becoming more optimistic about the long-term effects of the recent government-spending cuts and tax increases in the United States. In North America, 21 percent of executives predicted a positive effect of the measures on growth over the next three years, up from 17 percent in March.

As far as the future is concerned, most executives overall believe that the most likely scenario for the world economy is one where emerging markets lead (from 32 percent in March to 27 percent in June). But the second-largest share (17 percent, compared with 19 percent in March) think that the world economy is most likely facing a “leveling decade.” According to this scenario, emerging markets will be resilient through future crises as China struggles to drive domestic demand, and Europe and the United States will struggle with slow recovery and long-term debt. Executives in developed markets are likelier than their counterparts in the emerging markets to select this scenario.

“The uncertainty as to what will happen next appears reflected by the split of opinions among the other scenarios,” said Sven Smit, senior partner of the firm in Amsterdam and one of the key authors of the survey.

Another high risk factor for the global economy, according to North American executives in the survey, are sovereign defaults (39 percent) and increased economic volatility (37 percent). Smit said these responses are consistent with the average sentiment among other executives worldwide.

In general, more executives outside than within the euro zone are worried about that region’s economy, with 16 percent of North Americans saying that it is “extremely” or “very” likely that a country might feel a need to exit the euro zone, the survey showed. Only 7 percent of respondents in the euro zone agreed.

Similarly, the report found that more executives outside than within China are worried about the state of that nation’s economic growth, with 77 percent of respondents in North America saying that a sharp slowdown in China is likely, compared with 58 percent of executives within the country.

 
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