Why Global CEOs Are Cautious

Continued drops in oil prices, a slowdown in China and falling commodity prices have made global CEOs more cautious in the final quarter of 2015, according to the recent YPO Global Pulse quarterly CEO confidence index.

The Index remained steady from last quarter, at a relatively cautious 58.0 points – its lowest level since the third quarter of 2011 at the height of the global economic recession. Over the course of 2015, global confidence fell 3.4 points.

In the latest survey, only Asia, which edged up 2.4 points to 59.7, and Latin America, which jumped 4.8 points to 54.4, recorded any material increase in economic confidence.

Looking A Little Deeper

In the United States, the YPO Global Pulse Index stood at 59.1 points in the fourth quarter of 2015 versus 59.9 in the third quarter, marking the fourth consecutive quarterly decline in confidence. However, at 59.1, U.S. confidence is fairly optimistic and consistent with moderate GDP growth predicted in 2016.

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The survey also pointed out that confidence in the EU is the highest of any other region around the globe and one of the few regions where confidence did not decline this quarter. The index for the European Union remained stable, rising a fraction of a point to 60.5.

The European executives are optimistic that record low interest rates, the prospect of further easing by the European Central Bank, a sharp decline in the value of the euro, and the precipitous decline in oil prices will generate a fast pace of economic expansion in the upcoming year.

Meanwhile, economic confidence in Asia rose 2.4 points to 59.7, higher than the global index. The rebound in confidence in Asia in general, and China in particular, is at least partially attributable to the sharp drop in oil prices. The upswing in confidence this January was most pronounced in China, where sentiment jumped 10.0 points from 52.0 to 62.0.

In addition, CEOs' confidence index in the Middle East and North Africa fell more than 10 points in the past two years because of the decline in oil prices. Not all countries in the region are oil exporters, but confidence in those that are – like Saudi Arabia, the United Arab Emirates, Qatar and Oman – was enough to drive overall weakened economic sentiment.

Confidence among business leaders in Africa crashed in the fourth quarter of 2015, falling 3.3 points to 51.0, its lowest recorded level and below that of every other region in the world. The decline was primarily due to a huge drop in optimism within Nigeria as oil prices plummeted.

Image Credit: Public Domain
Posted In: NewsEducationEmerging MarketsEurozonePsychologyGlobalMarketsTrading IdeasGeneralglobal CEOsYPO Global Pulse
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