According to the latest Oxford Economics Global Risk Survey, companies are taking ‘concrete’ steps to bolster the resilience of supply chains – the number of companies reporting steps to underpin resilience has increased by six percentage points (ppts) on last year.
While geographic diversification remains the most popular strategy for boosting resilience – used by 60% of companies – near-shoring, friend-shoring and on-shoring have become significant methods for stabilising the supply of goods and resources.
At the same time, businesses have downgraded their expectations for growth this year and next. They also view the risks to global growth as increasingly weighted to the downside.
The banking sector is now the main focus of concern. Nearly half of respondents view either a marked tightening in credit supply or a full-blown financial crisis as the top risk in the near term, while more than half cite these risks as very significant in the medium term.
The Oxford Economics survey reveals most businesses are seeing risks as “weighted to the downside”. The proportion that are pessimistic about world economy now stands at 55%. The top risks for the next two years identified by the survey are a shrinking credit supply and inflation.
The starkest finding was expectations of disruption on the scale of the 2008 Global Financial Crisis. Based both on historical bank failures and on business perceptions, businesses believe there is now around a 30% chance of another crisis.
Oxford Economics says in the report: “This broadly matches the incidence of severe financial crises following historical episodes of multiple bank failures.”
Most of those expecting major financial disruption, or a “marked tightening in credit supply”, do so in the medium term.
Businesses continue to expect elevated inflation in 2023 and have revised up their expectations further. Respondents’ mean expectation for world consumer price inflation stands at 5.4% in 2023, up 0.3ppts on the previous survey.
The rise in near-term inflation expectations has been accompanied by a rise in expectations for inflation further ahead. Businesses’ mean expectation is for world inflation of 3.4% over the medium term, 0.2ppts higher than three months ago and some 0.6ppts above Oxford Economics’ baseline forecast. Respondents judge there to be a one in four chance of 4%+ world inflation over the medium term.
When businesses are asked to look at five-year horizon geopolitics becomes the biggest source of anxiety with more than 60% citing it as a “very significant risk”.
Climate change becomes the third most worrying development for businesses when considered on a five-year timeframe.
However, there is some optimism. While inflation currently dogs major economies, survey respondents identified interest rate cuts as an expected “upside” in the near term, followed by shoppers beginning to spend again. China returning to something close to normal and an end to the ongoing supply chain crisis, following the pandemic, is also a cause for cheer.
“As at last quarter,” says Oxford Economics, “a successful China reopening, reduced energy market disruption and early policy rate cuts lie among the top perceived upside risk over the next two years.”
Gavin Hinks is a freelance business and financial journalist
