Asia-Pacific CEOs' confidence sinks to three-year low: PwC

Manila

BUSINESS leaders in the Asia-Pacific region are losing confidence in their companies' growth prospects, with just over one in four CEOs believing that revenue will increase this year.

This is according to a new survey of 800 top executives from 52 countries, including Singapore, conducted by PricewaterhouseCoopers (PwC) from June to August. The findings were released in Manila on Monday at the start of the Asia-Pacific Economic Cooperation (Apec) CEO Summit.

This three-day CEO summit is one of the main events leading up to the annual meeting of the leaders of Apec's 21 members on Wednesday and Thursday in the Philippine capital.

Volatility in the financial markets this past summer took a toll on CEO confidence with only 28 per cent of business leaders feeling "very confident" that their organisations would see revenue growth over the next 12 months.

This is down from 46 per cent a year ago, and it is the lowest level since PwC started tracking 12-month confidence for Asia-Pacific CEOs in 2012.

In the US, 34 per cent of CEOs indicated that they were "very confident" about business growth in the world's largest economy. The figure was much lower in China with only 20 per cent of those surveyed feeling the same, but significantly higher in the Philippines (51 per cent).

Slowing demand from China, the catalyst for intra-regional trade, was moderating expectations across industries and geographies, said PwC in a statement, adding that growth risks would continue to tilt towards the emerging markets.

"After a year of historically high foreign direct investment into developing Asian economies, CEOs have become very sensitive to financial market signals and the likely impact on revenue growth," said PwC International chairman Dennis Nally.

Tony Tan Caktiong, chairman of Jollibee Foods in the Philippines, felt that volatility in the financial markets would always be present to a certain extent.

"(Volatility) also naturally comes with any change. I believe that it is not necessarily a bad thing, since at times, it forces us to adapt or to effect needed healthy change," he said.

Even with a gloomier economic outlook, the survey findings did not suggest that there would be a major pullback in investments any time soon.

Over half of the CEOs (53 per cent) expect to raise investments during the next 12 months. Most of those investments (68 per cent) are being planned for the Apec region.

The investments are also entering new markets as well, with each of the 21 Apec economies attracting at least one first-time investor. Fewer business leaders, meanwhile, said that they will decrease their overall investment globally.

While China, the US, and Indonesia remain the main draws, around half of CEOs say they plan to raise investments in countries such as Singapore, the Philippines and Vietnam.

Geopolitical and disaster risks emerged as sources of concern for CEOs, with 14.5 per cent of them saying they would hold back investment to "a great extent" should tensions in the region escalate.

The fact that more industry leaders are venturing into new locations is "testament to the experience they have gained in managing short-term instability and balancing this against the opportunities to generate business in the region", said Mr Nally.

On the subject of freer trade, six in 10 business leaders said that the Apec grouping was on the right track towards deeper economic integration, with 24 per cent believing that an Asia-Pacific free trade area could be a reality by 2020.

For many, the upcoming Asean Economic Community - set to kick in on Dec 31 this year - would be the game-changer, while there are also hopes that the US-led 12-nation Trans-Pacific Partnership would boost exports and fuel regional growth.

For CEOs in mid-sized companies - defined as those with annual revenue of between US$500 million and US$2.5 billion - half of them feel that lowering barriers to trade and foreign investment did more harm than good.

"Free trade doesn't automatically mean inclusive growth. A sizeable proportion of CEOs think free trade could significantly harm small and medium-sized enterprises," said Mr Nally.

"For people on the margins of the economy to participate in and benefit from growth and free trade in the Apec region, access to high-quality education at all levels and improved transport systems are key."

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