CEOs are preparing for a recession, and they don’t think it will be short

New York
CNN Business

Top CEOs are not buying the idea that the US economy could experience a soft landing after a series of historically large interest rate hikes by the Federal Reserve to fight inflation.

According to a survey by the consulting firm KPMG of 400 executives of large American companies, 91% of them predict a recession in the next 12 months. Moreover, the survey, released on Tuesday, found that only 34% of these CEOs think the recession will be mild and short.

“There has been enormous uncertainty over the past two and a half years,” said Paul Knopp, chairman and chief executive of KPMG US, referring to the Covid-19 pandemic and inflation concerns. “Now we have another recession looming.”

Businesses are bracing for a downturn and planning to cut spending. A great way to cut costs? Job cuts. KPMG noted that more than half of CEOs are considering workforce reductions to deal with a recession.

But there are some (mildly) encouraging signs.

Even though the majority of CEOs believe that a recession will be more than a modest setback, many C-suite leaders believe they are now in better shape to face such a difficult economic reality than they do. 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 the beginning of 2008 and the end of 2009.

“There is longer-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 businesses recently faced something of a dress rehearsal for a downturn when the economy briefly plunged into a recession two years ago at the start of the pandemic. The unemployment rate hit a record high of 14.7% in April 2020.

But Knopp said CEOs were clearly nervous enough about the short-term outlook for the economy to intend to make changes to some longer-term spending plans. One area in particular that could be impacted is investments in ESG efforts.

Knopp noted that while many CEOs have said they believe their businesses will improve over the long term through environmental, social and governance initiatives, they may need to put some of those efforts on hold over the next year in order to lower the costs.

He added that companies are realizing that there are potentially even greater risks in cutting too many jobs and cutting spending too sharply.

“Companies cannot overreact in the short term because it can create long-term problems. The pandemic has always created pressing concerns for businesses,” Knopp said. “Businesses are hoping there will again be a quick takeoff in the economy after a downturn.”

Knopp said CEOs will also pay close attention to the midterm elections and the political landscape in Washington more broadly before setting long-term investment plans.

“There is real uncertainty about the outcome of the midterm elections and the potential for tougher tax laws and increased regulation,” he said.

The concerns of the leaders of the biggest companies are apparently also shared by the leaders of the smaller companies.

A survey of middle-market companies conducted last month by accounting and consulting firm Marcum LLP and Hofstra University’s Frank G. Zarb School of Business showed that more than 90% of CEOs of midsize companies worry 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.


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