Top CEOs are not buying into the notion that the US economy may have a “soft landing” after a series of historically large interest rate hikes by the Federal Reserve to fight inflation.
According to a survey of 400 leaders of large US companies by consultancy KPMG, 91% are predicting a recession in the next 12 months.
In addition, the survey, released on Tuesday (4), found that only 34% of these CEOs think the recession will be mild and short.
“There has been tremendous uncertainty over the last two and a half years,” said Paul Knopp, chairman and CEO of KPMG US, referring to the Covid-19 pandemic and inflation concerns.
“Now, we have another recession looming.”
Companies are bracing for a recession and planning to cut expenses. A great way to cut costs? Work cuts. KPMG noted that more than half of CEOs are considering workforce reductions to deal with a recession.
But there are some (slightly) hopeful signs.
While most CEOs think a recession will be more than just a modest setback, many C-level executives believe they are stronger now to deal with such a harsh economic reality than they were in 2008.
The collapse of Lehman Brothers, the global financial crisis and the Great Recession led to a doubling of the unemployment rate, from 5% to 10%, between early 2008 and late 2009.
“There is long-term optimism about the US economy and the outlook for their own organizations,” Knopp said.
“Companies see themselves as more resilient and better prepared.”
It’s also worth noting that companies have recently dealt with something of a dress rehearsal for a downturn when the economy briefly dipped into recession two years ago during the start of the pandemic.
The unemployment rate hit a record 14.7% in April 2020.
But Knopp said CEOs are clearly nervous enough about the short-term outlook for the economy and intend to make changes to some longer-term spending plans.
One area in particular that can be targeted is investments in ESG efforts.
Knopp noted that while many CEOs have said they believe their business will improve in the long term due to environmental, social and governance initiatives, they may need to pause some of these efforts next year to keep costs down.
He added that companies realize there are potentially even greater risks of cutting too many jobs and cutting spending too much.
“Companies cannot exaggerate in the short term because it can create problems in the long term. The pandemic has still created urgent concerns for companies,” Knopp said.
“Companies expect there to be a quick take-off in the economy again after a downturn.”
Knopp said CEOs will also pay close attention to the midterm elections and the political landscape in Washington more broadly before laying out any long-term investment plans.
“There is real uncertainty about the outcome of the midterm elections and potential for tougher tax legislation and stronger regulations,” he said.
Concerns among the leaders of large companies are apparently shared by the heads of smaller companies as well.
A survey of midsize companies last month by the accounting and consulting firm Marcum LLP and the Frank G. Zarb Business School at Hofstra University showed that more than 90% of midsize CEOs are worried about a recession.
More than a quarter of these CEOs said they have already started layoffs or plan to do so within the next 12 months.
Source: CNN Brasil
Joe Jameson, a technology journalist with over 2 years of experience, writes for top online news websites. Specializing in the field of technology, Joe provides insights into the latest advancements in the industry. Currently, he contributes to covering the world stock market.
