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Economic conditions snapshot, March 2009

McKinsey Global Survey Results

J e a n- F r a n ç oi s M a r t i n

Executives forecast ongoing economic gloom, but, for the second survey in a row, the percentage of the respondents who think the situation is getting worse hasn’t increased.Many say their corporate-management team is doing a good job in the crisis.

A gloomy economic stasis has taken hold, responses to a

McKinsey Quarterly

survey—inthe feld rom March 10, 2009, through March 16, 2009—indicate.

The percentageo the executives who say economic conditions have gotten worse at the national levelhasn’t increased, but ewer than a third expect an upturn this year.Executives overall are confdent with how their companies are managing the crisis,though 53 percent expect profts to drop in the frst hal o 2009, and the numberexpecting to shed workers has jumped eight percentage points in six weeks. Companiesthat executives describe as well managed are likelier than others to be reducing bothoperating costs and capital spending—and perhaps not weakening operations a greatdeal, because these companies are also likelier than others to be improving productivity.Overall, the results show that most companies are not actively seeking more cash.This survey also solicited executives’ views on some topics o intense public debate.Respondents think “bad banks” are a good idea, disagree on whether CEOs are paidtoo much, and overwhelmingly say the public trusts business less than it did beore thecrisis—and lay the blame at the doors o fnancial frms.

Big questions

Among the respondents’ views, there is no ambiguity about whether trust in business hasallen as a result o the crisis: 85 percent say it has and—by a wide margin—they

Economic conditions snapshot:March 2009

McKinsey Global Survey Results:

The survey garnered 1,630responses rom executives acrossthe range o regions, industries,and unctional specialties.

Economic conditions snapshot, March 2009

McKinsey Global Survey Results

blame the decline mostly on fnancial frms’ misunderstanding o risk (Exhibit 1).That response holds even among executives at fnancial frms. Among respondents whoselected “other,” many specifed “greed.”There is much less consensus among the respondents on whether CEO compensationis excessive in their industries: 43 percent say it is, and 47 percent say it isn’t.

Perhapsnot surprising, nearly 60 percent o respondents in fnance say yes, as do 49 percent o respondents at very large companies (those with annual revenue o $1 billion or more).Another area o intense public debate is how to restore liquidity and stability to markets.One option is or governments to buy the fnancial institutions’ toxic assets andconsolidate them into a “bad bank” to restore liquidity to the rest o the system (a plansimilar to what the US government proposed on March 23, 2009). Fity-our percent o all respondents—and 61 percent o those in fnancial services—say creating a bad bankwould help restore liquidity. Executives across Asia are likeliest to hold this view.When we asked respondents which one action would do most to restore market stability,the responses express a clear ocus on liquidity, with various ways to achieve it. Thepaths mentioned by many respondents are lowering taxes or businesses, consumers,or both; increasing consumer confdence and spending; ocusing on global responsesin regulation, currency management, and confdence building (what one executivecalls “sincere cooperation o all nations”); and cogent, long-term leadership, described

Exhibit 1

The risks of poor judgement

% of respondents, n = 1,630

Has the public’s trust in businessdiminished as a result of the global economic turmoil?

Financial ﬁrms’ misunderstandingof risk and its potential effects onthe real economy

Factors responsible for the decline

% of respondents who believe the public’s trust in businesshas declined for given reason,

n = 1,39256Job lossesDeclines in investment valueReduced availability of creditPredatory lending practicesExecutive compensation levelsForeclosures33292525126Other6

213Don’t knowYesNo



Respondents who answered “don’t know” are not shown.

The rest responded “don’t know.”

Economic conditions snapshot, March 2009

McKinsey Global Survey Results

by another respondent as “pick a plan, stick with it, communicate tactics, be clear.”Respondents also call or government actions o all sorts, as well as the reverse: “Leavethe banks and companies alone. Let the bad ail and the good will thrive—this will setour globe back into balance.” Perhaps the most hopeul note comes rom an executivewho writes, “Have patience. Confdence and risk tolerance will improve naturally, as itis part o human nature.”

Stasis, with a few signs of hope

Patience will indeed be needed. Overall, executives say their national economies arein very poor shape—almost 90 percent say conditions have declined since September2008—but haven’t gotten worse in the past six weeks. Similarly, the proportion o respondents expecting their nations’ GDPs to drop stands at three-quarters, as it did sixweeks ago. The proportion o executives expecting an economic upturn this year hasdropped rom 40 percent to 30 percent, suggesting that respondents expect the currentsituation to continue or some time.Executives’ responses about their companies indicate that, over the past six weeks, theyhave settled into the expectation that poor conditions will continue or some time. Hal o all respondents expect their companies to shed workers in the frst hal o 2009—aneight-percentage-point increase rom just six weeks ago, when more expected an upturnto occur this year (Exhibit 2). And more respondents to this survey than to earlier onesoer a prediction or their companies’ near-term profts: 53 percent expect profts tobe lower in the frst hal o 2009 than in the second hal o 2008, and these are mostlythe same respondents who expect their companies to shed workers. Only 6 percent areunsure.

Finally, the executives’ expectations about how the crisis will change theirindustries haven’t shited notably since November 2008. Roughly two-thirds expectlower growth, and as in November smaller percentages expect consolidation and alower tolerance o risk.

Exhibit 2

Expecting to shrink

% of respondents

Jobs

Expected change in size of workforcein ﬁrst half of 2009

Proﬁt

Expected change in ﬁrst half of 2009compared with second half of 2008

Prices

Expected change in ﬁrst half of 2009,n = 1,630



Respondents who answered “don’t know” are not shown.

Increase2524No change1621Decrease5347Increase1111Stay the same3845Decrease5042

Mar 2009, n = 1,630Jan 2009, n = 1,820

Remainthe sameIncreaseDon’t knowLower

25129

In addition, 25 percent expect anincrease, and 16 percent expect nochange. In January, 27 percentexpected an increase, 17 percentexpected no change, 46 percentexpected a decrease, and 10percent didn’t know.