CEOs in Central and Eastern Europe pessimistic about economic growth in the year ahead, more optimistic about their own companies while underlining urgent need to transform – PwC 26th Annual Global CEO Survey
- Inflation (cited by 55%), geopolitical conflict (43%) and macroeconomic volatility (37%) rank as the top threats among CEE CEOs, as cyber and health risks fall from a year ago
- 58% of CEOs in the region are rising prices and 51% are cutting costs, yet 67% do not plan to reduce headcount and 75% don’t plan to reduce compensation
- Labour/skills shortages are seen as biggest challenges to long-term industry profitability for CEOs in CEE
- 46% of business leaders in CEE plan to invest in alternative energy sources in the next 12 months
- As many as 45% of CEOs in CEE don’t think their companies will be economically viable a decade from now if they continue on their current path
16 January 2023 – Nearly three quarters (74%) of CEOs in Central & Eastern European believe global economic growth will decline over the next 12 months. This is among the key findings of PwC’s 26th Annual Global CEO Survey, which polled 4,410 CEOs in 105 countries and territories in October and November 2022 and included a sub-sample of 99 CEOs from across Central and Eastern Europe (CEE).
This is the most pessimistic outlook regarding global economic growth since we began asking this question 12 years ago and represents a sharp reversal from last year, when 68% of business leaders in the region foresaw an improvement.
Adam Krasoń, CEO, PwC CEE said: “Russia's invasion of Ukraine has added additional geopolitical risks to the numerous existing threats to business. I am convinced, while at the same time hoping for a major de-escalation of the conflict of course, that our region will become even stronger thanks to growing exports and will also become an important centre of the nearshoring phenomenon worldwide. I also know that if organisations are to remain viable in the near and long-term, they must invest in their people and technological transformation agendas to empower their workforces. Leaders need to empower and engage their people like never before if they are to withstand the pressures of today’s economic environment and long-term disruptors.”
Inflation, geopolitical conflict and macroeconomic volatility top CEOs’ concerns
The impact of the economic downturn is top-of-mind for CEOs this year, with inflation (55%), geopolitical conflict (43%) and macroeconomic volatility (37%) leading the risks weighing on CEOs in the short term – the next 12 months.
Still, executives perceive inflation as a relatively transitory threat: the figure for the next five years declines to 36%. Geopolitical risk, meanwhile, moves down by just 6 percentage points to 37%, the highest ranking over the five-year horizon.
In comparison to last year's CEO Survey findings, cyber risks and climate change have slipped down the list of regional and global business leaders’ threat priorities. The picture changes for their five-year outlook. Over that timeframe, cyber risks join inflation, macroeconomic volatility, and geopolitical conflict in the top tier of risk exposure. This suggests that there is a clear first-mover advantage for leaders who are able to prioritise investments in cybersecurity today, stealing a march on their competitors. CEOs in CEE are increasing cyber investments in response to geopolitical conflict, but not as much as their global counterparts (CEE: 34%, global: 48%).
Agnieszka Gajewska, PwC Global Government & Public Services Leader, CEE Clients & Markets Leader said: “CEOs in our region have a huge role to play, alongside policymakers and other leaders, in responding to the geopolitical challenges from the war in Ukraine. Their decisions today will shape the future for decades to come, so it is encouraging to see their heightened engagement and determination to seize opportunities for transformation in response to the crisis. That determination also extends to areas beyond geopolitics, such as inflation, energy and climate change. In recent years we’ve noted a ‘wait and see approach’, where regional executives are more hesitant than their global peers to push for sweeping change. Today, CEOs in CEE share a growing conviction that the time to act is now.”
CEOs are raising prices and cutting costs—but most don’t plan to reduce workforce
In response to near-term economic challenges, CEOs in CEE are in line with global peers in taking actions to spur revenue growth and cut costs. One action stands out: 58% of CEOs in our region say they’ve already begun implementing price increases – a tool that so far just 51% of their global peers have reached for. This is understandable when we look at the region’s rates of price growth compared to Western Europe. According to the Eurostat data published in December 2022, the lowest annual inflation rates were registered in Spain (6.7%), France (7.1%) and Malta (7.2%). And the highest were recorded in countries in CEE such as Hungary (23.1%), Latvia (21.7%), Estonia and Lithuania (both 21.4%). More executives in CEE feel they simply have to begin to pass on their increased costs to their customers.
Both in CEE and globally, the shock of the Great Resignation and the ongoing need to attract and retain talent are shaping the response to macroeconomic challenges. Although 51% of leaders say they have already begun cutting operational costs and 21% have slowed investments, just 18% are implementing hiring freezes, only 12% are reducing the size of their workforce and 9% are reducing compensation.
Urgent need for transformation
In addition to a challenging environment, nearly 45% of CEOs in CEE think their organisations will not be economically viable in a decade if they continue on their current path. Executives see the need for change and they’re also thinking about the steps they need to get there. This is an optimistic sign that CEOs are finding ways to leverage the current crisis for their companies’ long-term benefit.
Chief among threats to their businesses, for leaders in our region, are potential shortages of labour and skills – part of the ongoing global war for talent that has been evident in CEO surveys for several years now. When asked about the forces most likely to impact their industry’s profitability over the next 10 years, as many as 64% of regional CEOs cited skills shortages as impacting them “to a large/very large extent”, well above the 52% global rate.
Other threats include changing customer preferences (CEE: 52%, global: 56%), and technology disruption, e.g. advanced tech, AI, the metaverse, blockchain (CEE: 47%, global: 49%).
To respond effectively to these challenges, CEOs are building resilience today. Technology- and reinvention-oriented investments loom large for many global and CEE CEOs. In our region, business leaders are planning to invest more in automation, deploying technologies (cloud, AI, etc.), and upskill their workforce in the next 12 months.
Energy independence is a growing priority for leaders in our region
CEOs are also looking for new energy sources, as Russia’s invasion of Ukraine was a wake-up call for many CEE countries, which were heavily dependent on Russian gas. In this year’s survey, 48% of CEOs in CEE said that the transition to new energy sources will impact their business in the next 10 years, substantially more than the 37% of global leaders who foresee this effect. And 46% of business leaders in CEE (globally: 34%) plan to invest in alternative energy sources in the next 12 months. This is an encouraging sign which will also beef up companies’ ability to respond to climate-related challenges.
Trust and transformation in generating long-term value
Engaged, empowered organisations move faster, innovate more readily, and collaborate more effectively to get things done. For CEOs hoping to enjoy such benefits, this year’s survey suggests some warning signs, as well as areas of opportunity. As many as 43% of CEE CEOs said leaders in their organisation do not often encourage debate and dissent, while 57% said their leaders did not often tolerate small-scale failures. And 75% said their leaders do not often make independent strategic decisions for their function or division.
Torn between the demands of short-termism and long-term transformation, CEOs say they are primarily consumed with driving current operating performance, rather than evolving the business and its strategy to meet future demands. If they could redesign their schedules, CEOs say they would spend more time on the latter.
About the data
PwC surveyed 4,410 CEOs in October and November of 2022. The global and regional figures in the report are weighted proportionally to country or regional nominal GDP to ensure that CEOs’ views are representative across all major regions. The industry and country-level figures are based on unweighted data from the full sample of 4,410 CEOs. There were 99 CEOs from Central and Eastern Europe included in the sub-sample. Interviews were conducted with CEOs from three global regions (North America, Western Europe and Asia-Pacific). The full findings can be accessed on pwc.com, and the interviews can be found at strategy-business.com/mindoftheceo.
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