The downturn for Asia Pacific is expected to be severe but short, said EY recently when releasing results of a survey of 1,200 CEOs across the globe.
The downturn for Asia Pacific would be characterised by geopolitical tensions, supply chain disruption and ongoing COVID-19 related uncertainty.
Survey highlights
- In Asia Pacific, almost all CEOs (99%) are actively planning for a downturn scenario, with a substantial majority (72%) preparing for a severe downturn in the region.
- More than half of CEOs (54%) believe the downturn will be temporary.
- This sentiment is particularly apparent in China, where 83% of CEOs are planning for a downturn that is severe but shorter in duration.
- Almost two-third of Asia Pacific CEOs (61%) are confident that fiscal and policy decisions will mitigate the worst impacts of a downturn and shorten its length.
- In contrast, the largest group (37%) of American CEOs polled believe that the downturn will be moderate in severity, but more persistent in in their primary market of operations.
- European CEOs are divided on the length, depth, and severity of the potential downturn.
- For the first time since 2020 (inaugural CEO Outlook survey) restrictive regulatory, trade and investment policies (25%) have superseded COVID-19-related issues (19%) as the key reason for CEO respondents altering investment plans.
- As a result of these exacerbated geopolitical challenges, 98% of respondents are reviewing their plans with 37% delaying a planned investment and almost a third (32%) stopping planned investments altogether.
- On- third (33%) of respondents consider a sustained period of higher input prices and inflation and a regionalisation of the global economy as the greatest risks to future growth for their business.
- While concerns over COVID-19-related uncertainty have receded in Asia Pacific, almost a third of CEOs (29%) still cite this as a key risk to their business (down from 43% in October 2022).
“Moving on from the previous fixation on pandemic-related risks, CEOs across Asia-Pacific are grappling with higher input prices and higher cost of capital, amidst rising inflation and regionalisation of the global economy,” said Yew-Poh Mak, EY Asia-Pacific Strategy and Transactions Leader.
With China rapidly easing COVID-19 measures and reopening to the world, inflation is expected to become more prominent, he noted.
In addition, fiscal and regulatory policy will be front of mind, as CEOs consider what levers to pull to navigate this slowdown, Mak added
Routes to growth: Deals and investment in innovation, tech and talent
While expecting a short downturn, Asia Pacific business leaders are keeping an eye out for strategic opportunities that may emerge from volatility to gain competitive advantage, EY pointed out.
Dealmaking remains a priority for the majority of respondents (84%) over the next 12 months with CEOs more inclined toward joint venture or strategic alliances (44%) compared to acquisitions (31%) and divestments (29%), survey results indicated.
When pursuing a merger or acquisition target, the majority of CEOs (68%) say they will prioritise markets where their home country has a strong geopolitical and economic relationship, EY said.
To further shift the dial and emerge stronger and more competitive from the downturn, 41% of respondents are planning to increase investment in innovation and R&D, including product and service innovation and corporate venturing, EY noted.
In addition, more than a third (38%) plan to increase their investment in digital transformation initiatives centered around data and technology and 39% of respondents cited talent, including workforce wellbeing and skills development as a priority for further investment, EY said.
The majority of CEO respondents (75%) agree that flexible working will be critical to reducing employee churn and attracting new talent, while 56% of respondents have already began shifting from hiring new talent to upskilling their existing workforces, according to the firm.
“While the downturn for Asia Pacific is expected to be severe but short, business leaders are sharpening their focus to ensure they are investing in the right bets and managing the fine balance between short-term profitability and long-term value creation,” Mak pointed out.
In addition, Asia Pacific business leaders see transactions as critical levers for future growth, though more are opting for joint ventures and alliances to mitigate the risks of major capital investments as economies slow, he said.
The main focus for transactions in 2023 will be on early-stage businesses to help CEOs enhance existing portfolios, access new talent or break into new markets, Mak predicted.
In addition, business leaders will continue to invest heavily in digital and technology transformation to deliver both revenue growth and leverage operational advantages, he added.
“In the face of overwhelming adversity, it is tempting to go defensive – cut costs, stall investments, downsize, and survive,” Mak said. “The start of 2023 offers signs that several key macroeconomic and geopolitical challenges may be abating.”
While new challenges will certainly arise, strategic and decisive leadership is needed from Asia-Pacific CEOs to steer their organisations through challenging times and emerge more resilient and better positioned than the competition, he advised.
