CEOs confident in growth prospects despite economic challenges

Australian and global CEOs are confident in the growth prospects for their companies over the next 3 years, despite concerns over cost of living and interest rates, KPMG International’s annual CEO Outlook survey finds.

Just under 80% of local and international leaders were optimistic on the short-medium-term outlook, although a similar number said continuing high interest rates and tight monetary policy could prolong a downturn.

Australian CEOs were slightly more bullish than their overseas counterparts, with 26% predicting growth of over 5%, while 8% foresaw growth of between 10-20-%. But a higher proportion of Australians also predicted possible job losses – 22% of Australian leaders saw potential staff cuts of up to 5% over the next 3 years compared with only 8% globally. Fewer local CEOs (64%) were optimistic about their country’s own economy than overseas (78%).

Some of the key issues seen by Australian CEOs as threatening potential growth for their companies included: cyber-crime/insecurity (84%); cost of living (82%); trade regulation (74%) and disruptive technology (70%). Talent had slipped down the list from recent years, with only 58% saying talent issues would impact growth over the next three years, compared with 68% globally.

Just over half (54%) of Australian leaders mentioned natural disasters and extreme weather events, but there was less concern in Australia than globally about failure to adapt to climate change (38% to 55%).

Andrew Yates, KPMG Australia CEO, said: “It is encouraging to see business leaders both here and overseas more confident than last year, when we were still emerging fully from the pandemic. There is clearly some concern about inflation and interest rates dampening prospects but overall, the figures are positive.”

Generative AI – Globally, this was seen as the number one investment priority by 70% of CEOs but this was lower among Australian CEOs (56%), who tended to see pay-back from investment in this area taking longer than their overseas counterparts.

Increased profitability and job creation were the two main attractions for Australian leaders in implementing generative AI. However, two-thirds believed there were ethical challenges in using AI, while technical capability and skills were key concerns for 60% (higher than global at 50%). Other concerns included: lack of regulation (62%), cost of implementation (52%) and adoption among employees (45%). Around two-thirds of Australian leaders said the level of regulation for AI should mirror climate commitments.

Andrew Yates said: “I am not surprised to see generative AI at the top of the investment priorities for CEOs, given its vast potential to transform business processes, but I am encouraged to see that business leaders do not view it as a threat to their employees, but on the contrary as a driver of job creation. Companies in many sectors are looking to establish a Responsible AI framework to help them deal with the ethical challenges around the use of AI whilst also taking advantage of the technology advances”.

Cyber – Interestingly, most CEOs (78% Australia, 82% global) said AI might help fight cyber threats but could also provide new attack strategies for adversaries. More worryingly, 41% of Australian CEOs felt their companies were under-prepared for a cyber attack. This compared to 20% overseas.

ESG – despite the rising focus on ESG in recent years, a large majority (80%) of Australian CEOs admitted that their current ESG progress was not strong enough to withstand the potential scrutiny of stakeholders or shareholders.

When asked what aspects of ESG they were prioritising in their investment strategy, 51% of Australian CEOs nominated ‘Governance models and reporting'. Slightly fewer Australians than global (64%/69%) said they had embedded ESG into strategy as a means of value creation, while three-quarters here and overseas said they had capacity and capability to meet required new ISSB reporting standards.

A larger number of global CEOs (35%) than Australian (12%) said they were now ‘changing their language’ and focusing on key specifics rather than referring to the catch-all ‘ESG’ area.

For Australian CEOs, the biggest problem (30%) in not meeting stakeholder expectations was the higher costs and increased difficulty of raising capital.

Overseas the biggest ESG investment priority was addressing decarbonisation and climate change goals (35%). The main obstacles to their companies’ Net Zero ambitions were: lack of skills/expertise (28%); the complexity of decarbonising supply chains (also 28%) and lack of internal controls/governance to operationalise it (20%).

Andrew Yates said: “It is notable that despite the huge current focus on ESG, many companies still have concerns about their ability to withstand rising external scrutiny in this area. The fact that the cost and difficulty of raising capital is now regarded as the top problem by CEOs if stakeholder expectations are not met illustrates how ESG is impacting directly on the bottom line. Companies are increasingly drilling down into the detail in terms of what aspects of ESG are of most importance to them.” 

Return to office –Two-thirds of CEOs, both in Australia and overseas, said that in 3 years’ time traditional white-collar roles would be fully based back in the office. Only a minority thought it would be hybrid or fully remote. A large majority (89% global, 75% Australia) also commented that they would reward employees who made the effort to come into the office – in terms of raises and promotions, and better projects.

Andrew Yates said: “While talent has, perhaps surprisingly, slipped down the list, challenges remain over the short term as the labour market remains tight with unemployment at a low 3.7% and businesses compete for the same scarce skills in cyber and tech to fuel investment priorities like AI and address threats to growth in cyber-crime/insecurity.

“At an overall level, the market for talent is becoming more accessible, but nowhere close to pre-COVID levels. With companies trying to attract the same talent, those offering an appealing Employee Value Proposition and culture will succeed.”

Societal issues – Fewer Australian CEOs (44%) than overseas (64%) believed the public was looking for business to take the lead role from governments in societal challenges like climate change, social justice and Inclusion, Diversity, Equity (IDE). A smaller proportion of Australian leaders (54% compared to 66% global) also thought IDE had moved too slowly in the business world, and fewer Australian leaders (46% compared with 61% global) said they were prepared to take a stand on politically or socially contentious issues, if their boards had concerns. Similarly (54%-71%), fewer said they would be willing to divest well-performing but socially contentious parts of business.   

The 9^th edition of the KPMG CEO Outlook, conducted with 1,325 CEOs, including 50 from Australia, between 15 August and 15 September 2023, provides unique insight into the mindset, strategies, and planning tactics of CEOs.

All respondents have annual revenues over US$500m and a third of the companies surveyed have more than US$10bn in annual revenue. The survey included CEOs from 11 key markets (Australia, Canada, China, France, Germany, India, Italy, Japan, Spain, UK and US and 11 key industry sectors (asset management, automotive, banking, consumer and retail, energy, infrastructure, insurance, life sciences, manufacturing, technology and telecommunications). NOTE some figures may not add up to 100 percent due to rounding.   

Ian Welch
KPMG Communications
0400 818 891
iwelch@kpmg.com.au